Reference no: EM133188572

Question - Internal control - You are a senior auditor at JKF Partners (JKF) who has been asked to assist with recommendations for improving the internal controls of Sunflower Ltd (Sunflower). Visa Express is the corporate credit card provider for Sunflower. Staff at the managerial level or above at Sunflower can apply for a credit card to use for business expenses (e.g., travel, expenses). Given the significant number of Sunflower's overseas clients, the use of Visa Express 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, executive have often had to unexpectedly use the Visa Express credit card to book business-class international airfares and extend hotel stays while on overseas assignment. Sunflower is liable for all expenditures accrued on these credit cards. While the card is not really meant for personal use, many of the senior managers also use the credit card to make personal purchases while travelling and then send a cheque made out to 'Visa Express' for the relevant amount to the accounts payable department to repay the expenditures. In late 2021, it was discovered that the accounts payable clerk at Sunflower, Melinda Tran, had defrauded Sunflower of an estimated $1.5 million. Among her other duties, Melinda was responsible for maintenance of the Visa Express account and her defrauding of Sunflower involved this account. Cheques made out to Visa Express by the senior managers for their 5 personal expenditure were never sent to cover Sunflower's outstanding balances. For the past eight months, Melinda had been depositing these cheques into her personal account with Visa Express. The fraud was discovered by a temporary staff member brought into accounts payable to cover Melinda's position while she was away on compassionate leave. Following the discovery of the fraud, the Board has requested that you review the policies and procedures currently in place in the accounts payable department and 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 Melinda had been working at Sunflower, she had only taken a few days of sick leave as well as two weeks of compassionate leave in November 2020 following the death of her father. By late 2021 Melinda had accumulated approximately 28 weeks of annual leave.

During the period of compassionate leave, the accounts payable team received a phone call from Visa Express chasing up an outstanding debt balance of more than $1.75 million. The debt balance was more than 90 days in arrears.

Melinda had kept records of all expenditures 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 Visa Express 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 Visa Express revealed that the cheques made out to Visa Express by the senior managers for their personal expenditure were never sent to cover Sunflower's outstanding balance. For the past six months, Melinda had been depositing these cheques into her personal accounts with Visa Express. At the time the fraud was discovered, Melinda had over $1.5 million in credit on her personal Visa Express account.

Required -

(i) Based on 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.

(ii) List and explain at least four weaknesses in the current accounts payable area (specifically dealing with the Visa Express corporate account).

(iii) For each weakness identified in (ii) above, recommend a practical and effective internal control procedure that could be introduced to overcome the weakness.