Chapter 5 Problems
5.1. You were asked to investigate extremely high, unexplained merchandise shortages at a department store chain. You found the following:
a. The receiving department supervisor owns and operates a boutique carrying many of the same labels as the chain store. The general manager is unaware of the ownership interest. -- It is a red flag warning so it is a fraud because there is a conflict of interest situation which should have alerted the auditor to the possibility of fraud.
b. The receiving supervisor signs receiving reports showing that the total quantity shipped by a supplier was received and then diverts 5% to 10% of each shipment to the boutique. --There is a false …show more content…
List two procedures you could follow to uncover John’s fraudulent behavior.
1) Trace all of the payments back to the supporting documentation. No record of the receipt of the goods would be listed in the receiving department, as well as the purchasing department. 2) Inspect the documentation supporting
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Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s
With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.
In this chapter, as in many other chapters, he intersperses short sentences into his narrative. In fact, some of his paragraphs in this chapter are only 1 sentence long. What kind of information is conveyed in these short paragraphs?
All goods purchased pass through a receiving department under the direction of the chief purchasing agent. The duties of the receiving department are to unpack, count, and inspect the goods. The quantity received is compared with the quantity shown on the receiving department’s copy of the purchase order. If there is no discrepancy, the purchase order is stamped “OK—Receiving Dept.” and forwarded to the accounts payable section of the accounting
In response to management’s request, a thorough evaluation of internal control over disbursements for manufacturing plant purchases of parts and supplies is being planned. As a preliminary step in planning the engagement, each plant manger has been requested to provide a written description of his or her plant’s procedures for processing disbursement vouchers for parts and supplies. Presented below are some excerpts from one of the written descriptions.