You have been asked by the chairperson of Beeston Trading Limited, Mrs Burton, to carry out an investigation of a suspected fraud by the company’s cashier. The cashier, Ralph Biggs, has left the firm without notice.

Beeston Trading Limited is a small company and there have been few controls and checks over Ralph’s work as the company had employed him for a number of years.

You are aware that the auditor found a discrepancy in the bank reconciliation for the company’s year-end of 30 June 20X0, and Ralph left the day it was discovered. Mrs Burton has asked you to carry out the investigation, rather than the company’s auditor. She is not happy with the auditor because she believes he should have found the fraud earlier, or at least warned that there were control weaknesses.

Mrs Burton says that Ralph was responsible for:

• receiving cash from customers for both credit and cash sales;

• making all payments, including purchase ledger payments and sundry payments;

• drawing the cash for wages;

• recording all receipts and payments in the cash book and preparing a bank reconciliation;

• making and approving petty cash payments and recording these transactions in the petty cash book.

The computerised sales and purchase ledgers are maintained by the staff in the sales and purchases accounting departments who post all transactions to these ledgers. Ralph used to send the sales ledger clerk a schedule showing the cash he had received. The remittance advices from customers were attached to this schedule, and they showed the invoices which were being paid.

The purchase ledger controller would inform Ralph of the payments he wished to make, and Ralph would then prepare the cheques, which were signed by Mrs Burton. A remittance advice was attached to the payment which was sent to the supplier.

Ralph would prepare the purchase and sales ledger control accounts each month and the reconciliation of these balances to the total balances on the respective ledgers.

For cash sales, the sales department raises a sales order, which is sent to the dispatch department which raises a dispatch note. The first copy of the dispatch note is given to the customer, the second copy is sent to the sales accounting department and the third copy is retained in the dispatch department. The sales accounting department then prices the invoice. The customer would pay the cash to Ralph, who retained a copy of the invoice for his records. Ralph would record the sales details in his analysed cashbook, and the month’s cash sales were posted from the total in the cashbook to the nominal ledger.

The payroll department calculates the wages. Ralph would draw the cheque to pay the wages and receive the cash. The payroll department would then make up the wage packets and pay the wages to employees. Ralph used to retain any wages not given to employees.

Mrs Burton is the authorised signatory for cheques; however, Ralph was the signatory when Mrs Burton was on holiday.

Required

Describe what checks you would conduct to determine whether a fraud has taken place, and to quantify the loss. Consider:

(a) bank reconciliation;

(b) cash receipts;

(c) cash payments;

(d) petty cash.