Substantive Procedures for Cash Outflow Irregularities
To detect irregularities in Apollo Shoes, an efficient audit program for the audit cycles will be needed. Cash, accounts payable, and payroll will be investigated using substantive procedures during the process. Fraudulent activity can damage a company beyond repair so it is very important to design an audit program to discover any signs of fraud or abuse. Knowing how each of the cycles operates will help in the search for fraudulent activity. Each of the audit cycles will be investigated using knowledge of common schemes used for each cycle and using substantive procedures for detecting irregularities for each audit cycle.
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Confirm if all records are the original records.
Determine if the register tape had been altered in any way.
Determine if any accounts have been falsified.
Determine if there are any substantial reversals of transactions that are inconsistent.
Determine is there are any gaps in the sequence of checks on the bank statement. Determine if there are out of sequence checks on the statement.
Accounts Payable Cycle
Substantive procedures for the accounts payable cycle focuses on two major areas of fraud- check tampering and expense reimbursement schemes. Check tampering schemes fall into one of five categories: forged maker schemes (forging the check signer’s name), forged endorsement schemes (forging the name of the intended check recipient), altered payee schemes, concealed check schemes (fraudulent check is presented to signer who signs without proper review), and authorized maker schemes (employee is authorized to sign checks and does so for his own benefit) (Wells, 2005). Expense reimbursement schemes fall into one of four categories: mischaracterized expense reimbursements, overstated expense reimbursements, fictitious expense reimbursements, and multiple reimbursements (Wells, 2005).
Audit procedures to detect each category of fraud are shown below:
Check Tampering- Forged Maker Schemes Reviewed? Notes
Confirm if blank check stock is secured, and who has access to the check stock.
Review the chain of custody for checks that are prepared but not yet signed.
Determine if separation of duties are in place for check preparation, check signing, and checking account reconciliation.
Confirm that signatures on checks match those of authorized signers. Confirm that signatures on check copies match those on signature log.
If a signature plate is used, determine who has access and if usage is logged.
Check Tampering- Forged Endorsement Schemes
Confirm that there is separation of duties between preparing and mailing checks.
Determine if the date a check is mailed is documented.
Review the controls regarding the ability to make changes to the accounts payable system.
Confirm procedures to address, escalate, and log vendor complaints for non-payment. Determine if invoices are marked paid upon disbursement of amount due.
Review procedures to detect duplicate payments. Determine if there is a periodic review of disbursements by payee and amount to detect duplicate disbursements.
Check Tampering- Altered Payee Schemes
Determine if canceled checks are reviewed during the checking account reconciliation. Review payees to confirm that checks are payable to approved vendors (no employee or fictitious vendors).
Confirm the payee section is completed on all checks prior to signing.
Check Tampering- Concealed Check Schemes
Confirm that all check payees are reviewed by the signer prior to signing the checks.
Determine is there are any gaps in the sequence of...