Select one fraud audit procedure from the list provided that would prevent or detect the fraud described. The audit procedures may be used twice in this exercise or not at all. ___ The auditor suspects that a kiting scheme exists.

___ The auditor suspects that a large receivable is fictitious.

___ The auditor suspects that selected employees of the company have received unauthorized raises from the companys payroll supervisor, who has access tom payroll records.

___ The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise that was neither ordered nor received.

___ The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account, and simultaneously recording it as a deposit in a second account.

___ The auditor suspects that the entitys controller has overstated sales and accounts receivable by recording fictitious sales to regular customers in the companys books.

Answer Bank

A. Compare the details of the cash receipts journal entries to the details of the corresponding daily deposit slips.

B. Obtain the January bank statement and compare the cleared checks to the year end December bank reconciliation.

C. Determine if there is any inventory on consignment.

D. Inspect payroll check endorsements for similar handwriting.

E. Prepare a bank transfer schedule.

F. Examine selected equipment repair orders and supporting documentation to determine the propriety of the charges.

G. Examine the entitys shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

H. Determine that the details of selected prenumbered vouchers match related vendors invoices

I. Observe payroll check distribution on a surprise basis.

J. Vouch data in the payroll register to documented authorized pay rates in the human resource departments files.

K. Examine the supporting purchase orders and receiving reports for selected paid vouchers.