Assessment Task-
JAE LIMITED
BACKGROUND INFORMATION
Wizard Finance is the corporate credit card provider for JAE Limited. Staff at the managerial level or above at JAE can apply for a card to use for business expenses (e.g. travel, expenses).
Given the significant number of JAE's overseas clients, the use of Wizard Finance credit cards has been extremely convenient for staff members, especially when they have had to pay for significant overseas expenses in foreign currencies. For example, executives have often had to unexpectedly use the Wizard Finance credit card to replace laptops, book business-class international airfares and extend hotel stays while on overseas assignment. JAE is liable for all expenditures accrued on these cards.
While the card is not really meant for personal use, many of the senior executives also use the credit card to make personal purchases while travelling and then send a cheque made out to ‘Wizard Finance' for the relevant amount to the accounts payable department in order to repay the expenditures.
In late 2014, it was discovered that the accounts payable clerk at JAE, Steve Ray, had defrauded JAE of an estimated $1 million. Among his other duties, Steve was responsible for maintenance of the Wizard Finance account and his defrauding of JAE involved this account. Cheques made out to Wizard Finance by the senior managers for their personal expenditure were never sent to cover JAE's outstanding balance. For the past six months, Steve had been depositing these cheques into his personal account with Wizard Finance. The fraud was discovered by a temporary staff member brought into accounts payable to cover Steve's position while he was on compassionate leave.
Following the discovery of fraud within the accounts department, the Board has requested that you review the policies and procedures currently in place in the accounts payable area and to make recommendations to the Board on how to improve the internal control environment. You have been given the following background facts:
During the time that Steve had been working at JAE, he had only taken a few days of sick leave as well as two weeks of compassionate leave in November 2013 following the death of his mother. By late 2014 Steve had accumulated approximately 30 weeks of annual leave.
During the period of compassionate leave, the accounts payable temp received a phone call from Wizard Finance chasing up an outstanding debt balance of more than $1.5 million. The debt balance was more than 90 days in arrears. This led to the fraud being discovered.
Steve had kept records of all expenditure incurred on the cards during the relevant period, including details indicating whether expenses were of a personal or business nature. There were also photocopies of the personal cheques made out to Wizard Finance which various senior managers had sent with their accounts each month to cover the personal expenditure incurred on their cards.
Further review of the files and discussions with Wizard Finance revealed that the cheques made out to Wizard Finance by the senior managers for their personal expenditure were never sent to cover JAE's outstanding balance. For the past six months, Steve had been depositing these cheques into his personal account with Wizard Finance. At the time the fraud was discovered, Steve had over $1 million in credit on his personal Wizard Finance account.
REQUIRED
1. With reference to the information above, identify the key factor (other than segregation of duties) that enabled the fraud to remain undetected for such a long period of time.
2. Describe and explain weaknesses in the current accounts payable function (specifically dealing with the Wizard Finance corporate account) and recommend how each weakness can be addressed.
It is expected that you should be able to identify five (5) weaknesses in the current accounts payable function and provide a suitable recommendation for addressing each identified weakness.