OTHER FRAUD AND ERROR IMPLICATIONS


Cash payments

Best system is an imprest system where a fixed amount is assigned to a cashier and more is only given on production of vouchers paid. Advantages are:

  • Fixed amounts prevents escalation of amounts held so risk is kept small.
  • It is a self checking system.
  • Reconciliation of a petty cash book is made easier - regular surprise checks.

WAGES

Potential errors include:

  • Dummy workers. Fraudulent double payment for workers.
  • Payments for work not done and unclaimed wages being misappropriated.
  • Occurrence of payroll errors: starters, leavers, rate changes, hours worked
  • Improper deductions being made or being misappropriated.
  • Inflation of the payroll in other ways.

Implications of the above errors

        1. Over valuation of stocks using wrong labour cost

- Loss of resources to services never rendered.

        1. Overstatement of stocks.
        2. Misstatement of various expense accountsWrong stock valuations.
        3. Making double payments to authorities. Complaints by employees.
        4. Unreliable records.
        5. Misstated expense and stock accounts.

Preventive measures

  1. Establish a Human Resources Management department to hire and fire and to regulate pay.
    • Have serially numbered documents.
    • Clock cards and time sheets to record time.
    • Clock cards and time sheets should be approved before payment.
    • Payroll approved by senior management committee. 

2. Clock cards and time sheets.

3. Document all deductions. Check documents against payment to ensure agreement.

4. Monthly reconciliation of payroll by an independent clerk.

Other matters

  • Maintenance of stock records should be performed by a person who does not have physical access to stock and is not involved in sales or purchases recording.
  • Have segregated lockable areas.
  • Reconciliation of physical quantities of stock to records discrepancies should be referred to the highest level of authority and investigated immediately.
  • Writing of damaged obsolete and slow moving stocks. Senior independent officer should do it based on available documentation evidence.
  • Scrap and waste products; Budget estimated scrap and waste and reconcile to actual amounts.
  • Concealment of theft by write off.