Ican 2023 Advanced Audit And Assurance Question 7

At the annual general meeting of Aggressive Bank Limited for the year 2020 the shareholders complained about increasing cases of customers complaints about fraud. It was believed that if drastic actions are not taken to reduce this, it could lead to brand damage and reputational issues. In performing their oversight functions, the audit committee of the bank commissioned the internal audit unit to identify issues of fraud and likely causes. From the internal audit report, the following issues were noted: i. Due to poor information security system, some unscrupulous individuals hacked into customers current/savings deposits accounts and made unauthorised transfers to their bank accounts; ii. There were cases of forged cheques with forged signatures, cards, and withdrawal slips which were used to withdraw money from bank accounts. These acts were perpetrated through collusion with staff of the bank; iii. Cases of opening and operating fictitious bank accounts where illegal transfers were made. The problem is compounded with incomplete know your customer (KYC) activities carried out by the bank’s personnel; iv. Granting of loans to fictitious borrowers through fictitious accounts opened in branches of the bank; v. Some junior staff making claims of overtime for hours not worked; vi. Suppression of cash/cheques that were supposed to reflect on customers’ deposits and loan repayments. The cash/cheques were diverted to the fictitious accounts in operation in the bank; and vii. Cases of alteration of programmes, or application packages and gaining access to unauthorised domains or accounts to give credit to accounts for which the funds were not intended. The following were identified as likely causes: Weak accounting and internal control system; Negligence and poor supervision of subordinates; Inadequate follow up or disregard for “know your customers (KYC)” rule; Poor information technology and data base management; Poor salaries and conditions of service; Failure to perform regular end of day call-over; Non implementation of sanctions on employees who failed to comply with standard operating procedures; Notwithstanding details of fraud and forgeries to regulators as required due to fear of negative publicity or image; Lack of experience and inadequate training; and Inadequate infrastructure in the bank as manifested in constant power failure, congested office space and non-completion of expected daily task before closing. The audit committee having gone through this internal audit report, decided to act swiftly by mandating the management to engage a forensic expert to report forensic report from on this. Your firm has been appointed to submit a report on this issue in the next four weeks.