Fraud- fictitious employee been created

One of the common fraud we have encountered / read on the news relates to payroll fraud, where fictitious employees were been created by individual to earn additional salaries on the fictitious employees been recorded.

One of the famous cases occurred in Singapore Airlines, whereby fictitious employees' hours were clocked in by payroll officer. Payroll officer pocketed the money successfully by entering the bank account details into the system to earn the extra hours clocked.

To minimize the risk of fraud arising from fictitious employees been created. There should be proper segregation of duties between:

a) personnel who have the access right to payroll system to create and employee
b) personnel who have the access right to enter bank acccount details of individual employee into the system
c) a reviewer ( who should not been entitled the right to edit, but been entitled the right to view) to ensure that the bank account details is input correctly
d) a reviewer who review the monthly payroll costs ( by department, by employee name); this reviewr should do a random testing to tally the summary of payroll cost details to timesheet submitted / revised letter of incremenet

The segregation of duties mitigate the risk that a fictitious employee can be created by individual.

#102- Auditing operating cost- understanding cost drivers

Auditing operating costs is always not an easy task. A good audit procedure requires auditor to develp a thorough understanding of the nature of the cost,determination of fixed / variable costs, understand the cost drivers of the costs (especially for variable costs),understand the linkage between the costs and the revenues.

Significant assertion of auditing an operating cost is to ensure that the cost recorded is complete (i.e. completeness).

First of all, we need to understand the nature of the costs (i.e. what type of costs, when was the costs incurred, is the individual amount incurred significant, etc). After develop the understanding of the nature of the costs, we need to understand whether the costs is a fixed costs, or variable costs.

Then, we need to understand the cost driver of the costs. This procedure is especially important for variable costs component. Auditor need to understand what are the factors that drive the cost (for instance, transportation cost could be significant to a trading house). The cost driver for transportation cost is the level of business activities / number of deliveries completed

Auditor can analyze the company's record on number of deliverties completed for the year, and compare our expectation to the cost variation. To illustrate, while number of deliveries go up, we will expect total transportation cost to increase. A good understanding of the cost drivers allow the auditor to have complete understanding of the costs/ and develop a good audit approach to analyze the cost variation.