AA – L2 – SA – Q4.6 – Fraud Prevention Controls

Control to prevent supplier fraud.

Question

A supplier fraud has just been identified by the management of Coral Ltd. The supplier had developed the technique of delivering goods that had not been ordered by Coral Ltd. and then subsequently raised invoices for the unordered goods which Coral Ltd. then paid. Which of the following controls would have prevented this fraud?

A All invoices received are agreed to goods received notes

B All goods received are agreed to purchase orders

C All purchase orders are kept in a locked box in the purchases department office

D All orders are authorized by the purchase’s director

Answer

Explanation:
The fraud involved delivering unordered goods and invoicing for them. Agreeing all goods received to purchase orders ensures that only ordered goods are accepted, preventing the acceptance of unordered goods and subsequent payment. Other options, such as agreeing invoices to goods received notes or locking purchase orders, do not directly address the issue of accepting unordered goods. Option B is the correct answer.

Tags: Fraud Prevention, ICAG, Internal controls, Purchase Controls
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

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