Question

Describe a situation in a job you’ve had where there was potential for fraud. Include in your discussion the elements of the fraud triangle. You are not (hopefully) describing an actual fraud, but rather putting yourself in a position where you’ll better understand the implications of fraud. If you cannot associate the question to a job you’ve actually had, you may use an imagined scenario to answer the question (not too outlandish though! Make it realistic.)

Answer 1

In one of a company where I was auditing, I was checking a case of purchase expenses. For purchase, the company had a system of 3 way check where the purchase invoice should be matched with the purchase order, purchase invoice and Goods Receipt Note (GRN). To run through the process, the purchase is initiated with the purchase order (PO) being issued by the company to the vendors with the details of ordered quantity and rates. After the PO is raised, the vendor delivers the ordered products to the company's warehouse. The store keeper after inspection of the delivered products prepares the GRN. The invoice along with the GRN is provided to the accounts department who checks the invoice, PO and GRN. After verifying all rates and quantity, if found appropriate, is recorded as purchase expense in the books of the company.
While I was reviewing the purchase entry, the quantity in the books of accounts matched with invoice and GRN but the purchase rates in the invoice was not in line with the rates in PO. Since, the PO rates are agreed contractually with the vendors, they are obliged to provide the products at the contracted rates. The rates differing in the invoice with PO is an exception and should have been internally reported by the accounts executive to the management. However, on enquiry, it was found that no such intimation was made by accounts executive and the payment were already made to the vendor.
After the situation was discussed with the Finance Head, we further extended our substantive testing and noted similar transaction with the same vendor in a couple of other transactions which were finally reported to the management.
Here, the case could be a potential fraud case as the accounts executive may have been in collusion with the vendor.