QUIZ QUESTIONS.

TO BE DONE IN GROUPS OF NOT MORE THAN 8 MEMBERS.

QUESTION ONE

a) Consider the three aspects of the fraud motivation triangle. If you were hired by the board of
directors to tell them what they could do to prevent fraud, what general activity would you
tell them to engage in? List four activities for each of the tree dimensions of the fraud triangle.
b) Discuss why fraud committed by a firm can have a spillover effect for other firms.
c) Briefly explain auditor’s responsibility, management’s responsibility and the responsibility of
the board of directors on fraud prevention, detection and control

QUESTION TWO

a) Clearly explain the word “ Whistleblowing”

b) Discuss whether giving a financial incentive to fraud whistleblowers is good public policy.
c) Explain whether financial incentives are truly necessary to ensure an effective fraud whistle
blowing program.
d) Describe how to protect whistleblowers from retaliation from their employers.

QUESTION THREE

The Anti-Money Laundering Act of Tanzania defines money laundering as an “engagement of a

person or persons, direct or indirectly in conversion, transfer, concealment, disguising, use or
acquisition of money or property known to be of illicit origin and in which such engagement
intends to avoid the legal consequence of such action”. A person who engages, directly or
indirectly, in a transaction that involves property that is proceeds of a predicate offence while he
knows or ought to know or ought to have known that the property is the proceeds of a predicate
offence commits an offence of money laundering.
The effects of money laundering are severe and extensive. It can create global and local impacts
on businesses, economies, and societies.

Required
I. Discuss the negative effects of money laundering on the economy?
II. Distinguish forensic accounting, fraud auditing, and investigative auditing from financial
auditing.

QUESTION FOUR

You are an audit manager in Kijanga & Co, responsible for the audit of Sun & Moon Co, a large
company which provides information technology services to business customers. The finance
director of Sun & Moon Co, Najma Ally contacted you this morning, saying:

‘I was alerted yesterday to a fraud being conducted by members of our sales team. It appears that
several sales representatives have been claiming reimbursement for fictitious travel and client
entertaining expenses and inflating actual expenses incurred.

Specifically, it has been alleged that the sales representatives have claimed on expenses for items
such as gifts for clients and office supplies which were never actually purchased, claimed for
business-class airline tickets but in reality had purchased economy tickets, claimed for non-existent
business mileage and used the company credit card to purchase items for personal use.

I am very worried about the scale of this fraud, as travel and client entertainment is one of our
biggest expenses. All of the alleged fraudsters have been suspended pending an investigation,
which I would like your firm to conduct.

We will prosecute these employees to attempt to recoup our losses if evidence shows that a fraud
has indeed occurred, so your firm would need to provide an expert witness in the event of a court
case. Can we meet tomorrow to discuss this potential assignment?’
Sun & Moon Co has a small internal audit department and in previous years the evidence obtained
by Sahara & Co as part of the external audit has indicated that the control environment of the
company is generally good. Sun & Moon received an unmodified report on the financial statements
for the year ended 31 March 2022

Required:
Assess the ethical and professional issues raised by the request for your firm to investigate the
alleged fraudulent activity.
S

QUESTION FIVE

Mpuma Toys Co (Mpuma) is a manufacturer of children’s building block toys; they have been
trading for over 35 years and they sell to a wide variety of customers including large and small toy
retailers across the country. The company’s year-end is 30 June 2022

The company has a large manufacturing plant, four large warehouses and a head office. Upon
manufacture, the toys are stored in one of the warehouses until they are despatched to customers.
The company does not have an internal audit department.

Sales ordering, goods despatched and invoicing

Each customer has a unique customer account number and this is used to enter sales orders when
they are received in writing from customers. The orders are entered by an order clerk and the
system automatically checks that the goods are available and that the order will not take the
customer over their credit limit.

For new customers, a sales manager completes a credit application; this is checked through a credit
agency and a credit limit entered into the system by the credit controller. The company has a price
list, which is updated twice a year. Larger customers are entitled to a discount; this is agreed by
the sales director and set up within the customer master file.
Once the order is entered an acceptance is automatically sent to the customer by mail/email
confirming the goods ordered and a likely despatch date. The order is then sorted by address of
customer. The warehouse closest to the customer receives the order electronically and a despatch
list and sequentially numbered goods despatch notes (GDNs) are automatically generated.

The warehouse team pack the goods from the despatch list and, before they are sent out, a second
member of the team double checks the despatch list to the GDN, which accompanies the goods.

Once despatched, a copy of the GDN is sent to the accounts team at head office and a sequentially
numbered sales invoice is raised and checked to the GDN. Periodically a computer sequence check
is performed for any missing sales invoice numbers.

Fraud

During the year a material fraud was uncovered. It involved cash/cheque receipts from customers
being diverted into employees’ personal accounts. In order to cover up the fraud, receipts from
subsequent unrelated customers would then be recorded against the earlier outstanding receivable
balances and this cycle of fraud would continue.

The fraud occurred because two members of staff ‘who were related’ colluded. One processed
cash receipts and prepared the weekly bank reconciliation; the other employee recorded customer
receipts in the sales ledger.

An unrelated sales ledger clerk was supposed to send out monthly customer statements but this
was not performed. The bank reconciliations each had a small unreconciled amount but no-one
reviewed the reconciliations after they were prepared.

The fraud was only uncovered when the two employees went on holiday at the same time and it
was discovered that cash receipts from different customers were being applied to older receivable
balances to hide the earlier sums stolen.

Required:
Identify and explain controls Mpuma should implement to reduce the risk of fraud occurring again
and, for each control, describe how it would mitigate the risk.
QUESTION SIX

A client heard through its hot line that John, the purchases journal clerk, periodically enters
fictitious acquisitions. After John creates a fictitious purchase, he notifies Alice, the accounts
payable ledger clerk, so she can enter them in her ledger. When the payables are processed, the
payment is mailed to the nonexistent supplier’s address, a post office box rented by John. John
deposits the check in an account he opened in the nonexistent supplier’s name.

Required;

I. Define the term fraud, fraud deterrence, fraud detection, and fraud investigation.

II. List TEN personal (as opposed to organizational) fraud symptoms, or red flags, that
indicate the possibility of fraud. Do not confine your answer to this example.

III. List two procedures you could follow to uncover John’s fraudulent behavior.