Fraud investigation – NBC Institute

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

Question

At the annual general meeting of Aggressive Bank Limited for the year 2020, shareholders raised concerns over increasing cases of customer complaints about fraud. Shareholders emphasized that drastic actions were required to avoid brand damage and reputational issues.

In performing their oversight functions, the audit committee commissioned the internal audit unit to investigate fraud issues and likely causes. The internal audit report highlighted the following issues:

Hacking of Accounts: Unauthorized transfers due to poor information security systems.
Forgery: Forged cheques, signatures, and withdrawal slips used in collusion with bank staff.
Fictitious Accounts: Opening and operating fake accounts to facilitate illegal transfers due to incomplete KYC.
Loans to Fictitious Borrowers: Fictitious loans issued via fake accounts.
False Overtime Claims: Junior staff claiming overtime for hours not worked.
Suppression of Cash/Cheques: Diversion of customer deposits and loan repayments into fictitious accounts.
Alteration of Programs: Unauthorized access to systems to manipulate account balances.

Likely Causes:

Weak internal controls and supervision.
Non-compliance with KYC rules.
Poor IT and database management.
Negligence, inadequate training, and poor working conditions.
Fear of reporting fraud to regulators due to reputational concerns.

The audit committee mandated management to engage a forensic expert to investigate and report on the matter within four weeks. Your firm has been appointed for this engagement.

Required:

(a) Discuss the ethical principles applicable to this situation. (5 Marks)

(b) Advise on the procedures to gather evidence for an acceptable report to management. (5 Marks)

(c) Recommend the agencies and relevant laws management should use to tackle these problems, where legal actions might be required. (5 Marks)

Answer

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Tags: Ethical Principles, Evidence Gathering, Forensic Audit, Fraud investigation, Regulatory Compliance
Level: Level 3

Topic: Forensic Auditing

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

Question

Havana Bank Plc was listed on the Nigerian Stock Exchange in February 2015. There was an initial public offer in the same period with proceeds of N5 billion. Part of the proceeds was expected to be utilized to strengthen the bank’s internet banking facility.

In November of the same year, the Managing Director/Chief Executive Officer (MD/CEO) proceeded on a three-week vacation to the United Kingdom but did not return at the time of concluding the audit of the 2015 financial statements early in 2016. It was observed that the MD/CEO had absconded with documents relating to the public offer. It was also noted that he kept drawing cash whilst in the United Kingdom amounting to N922 million.

The Bank closed its Gambian operations in June 2015 because it had made losses for two consecutive years. Prior to the two years before the closure, the operations in Gambia had grown into a network of five branches, contributing 15 percent of the gross income and 9.5 percent of the net profits of the group. The closure was not disclosed in the financial statements, but reference was made to the closure in the directors’ report.

As the Audit Manager in the firm of Chartered Accountants that audits Havana Bank Plc, you are required to:
a. Identify and explain the significant audit matters you will consider in forming an opinion in relation to the missing documents and the cash drawings by the absconded MD/CEO. (10 Marks)
b. Analyse and evaluate your views on the non-inclusion of the discontinued Gambian operations in the financial statements. (10 Marks)
c. Explain FIVE duties, as an auditor, in relation to the bank’s internet banking. (10 Marks)

Answer

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Tags: Audit opinion, Discontinued Operations, Financial Disclosures, Fraud investigation, Internet Banking Audit
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

Question

You are the external auditor of Mankani Motors (MM), a listed transportation company that hires vehicles to different companies. MM has about 650 vehicles in total, consisting of Vans and Lorries. Occasionally, the vehicles break down or are involved in road traffic accidents. If a vehicle is badly damaged or suffers a serious mechanical fault, it is Segbefia’s job to inspect the vehicle and to make a decision either to have it repaired or written off and sold for the residual value. Segbefia is a qualified mechanic, with many years’ experience of working with heavy goods vehicles and has excellent contacts in the trade. In cases where he decides to scrap the vehicle, he will usually dispose of it to a contact in fairly close proximity to where it has broken down or been crashed.

The CEO of MM has been reviewing some statistics produced by the company. She has noticed an apparent anomaly in relation to Segbefia’s work. Up to about one year ago, Segbefia recommended scrapping about 15% of the vehicles he inspected, irrespective of whether they had broken down or been involved in an accident. However, in the last 12 months he has recommended scrapping nearly 90% of broken-down vehicles, but only about 10% of the vehicles that were involved in accidents. The CEO is concerned that Segbefia may be involved in some kind of fraudulent or “irregular” activity. The CEO has asked you, as an external auditor, to conduct a discreet investigation to discover if this is indeed the case and, if not, to produce a report that explains Segbefia’s seemingly anomalous behavior.

Required:

i) Appraise the extent to which the external auditor is the most appropriate person to carry out such an investigation. (6 marks)

ii) Analyze FOUR (4) matters to be taken into consideration before deciding whether or not to accept this appointment in addition to continuing as auditor. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Anomalous behavior, External audit, Fraud investigation, Vehicle scrapping
Level: Level 3

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

Question

Hacking of Accounts: Unauthorized transfers due to poor information security systems.
Forgery: Forged cheques, signatures, and withdrawal slips used in collusion with bank staff.
Fictitious Accounts: Opening and operating fake accounts to facilitate illegal transfers due to incomplete KYC.
Loans to Fictitious Borrowers: Fictitious loans issued via fake accounts.
False Overtime Claims: Junior staff claiming overtime for hours not worked.
Suppression of Cash/Cheques: Diversion of customer deposits and loan repayments into fictitious accounts.
Alteration of Programs: Unauthorized access to systems to manipulate account balances.

Likely Causes:

Weak internal controls and supervision.
Non-compliance with KYC rules.
Poor IT and database management.
Negligence, inadequate training, and poor working conditions.
Fear of reporting fraud to regulators due to reputational concerns.

The audit committee mandated management to engage a forensic expert to investigate and report on the matter within four weeks. Your firm has been appointed for this engagement.

Required:

(a) Discuss the ethical principles applicable to this situation. (5 Marks)

(b) Advise on the procedures to gather evidence for an acceptable report to management. (5 Marks)

(c) Recommend the agencies and relevant laws management should use to tackle these problems, where legal actions might be required. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Ethical Principles, Evidence Gathering, Forensic Audit, Fraud investigation, Regulatory Compliance
Level: Level 3

Topic: Forensic Auditing

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit opinion, Discontinued Operations, Financial Disclosures, Fraud investigation, Internet Banking Audit
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

Question

Required:

i) Appraise the extent to which the external auditor is the most appropriate person to carry out such an investigation. (6 marks)

ii) Analyze FOUR (4) matters to be taken into consideration before deciding whether or not to accept this appointment in addition to continuing as auditor. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Anomalous behavior, External audit, Fraud investigation, Vehicle scrapping
Level: Level 3

Question Tag: Fraud investigation

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AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

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AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

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AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

You're reporting an error for "AAA – Nov 2016 – L3 – Q1 – Forensic Auditing"

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

You're reporting an error for "May 2019 – L3 – Q5a – Audit evidence"

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

You're reporting an error for "AAA – May 2023 – L3 – Q7 – Forensic Auditing"

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

You're reporting an error for "AAA – Nov 2016 – L3 – Q1 – Forensic Auditing"

May 2019 – L3 – Q5a – Audit evidence

Evaluate the role of an external auditor in investigating a potential fraud related to vehicle scrapping and consider the implications of accepting such an assignment.

You're reporting an error for "May 2019 – L3 – Q5a – Audit evidence"

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