ISSAI 1240

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ISSAI 1240 practice note 240 Substantive Testing • Inspect records and documentation to test for: – Unusual vendor names and addresses; – Copies of documents (invoices, purchase orders, etc) received instead of originals; – Orders for materials already on hand in sufficient quantities; – Orders for material that is scheduled for disposal due to obsolescence; – Orders for materials not consistent with the mandate and operations of the entity; – Purchases falling just below the threshold for next-level approval (in quantity or amount); – Split purchases using purchase orders, etc to circumvent existing policies; – Payments to vendors outside the normal procurement system; – Signatures of management / supervisors on documents normally signed by subordinates (thereby overriding normal control routines); – Suppliers receiving significant amounts of business from the public sector entity; – Prices in excess of market or expected market prices, especially when large quantities are bought; – Contract award patterns that may indicate that bids are rotated; – Low quality combined with high prices / high product failure rates; – Sole source procurement in any significant numbers; – Excessive use of exceptional / shortened / emergency processes for procurement. Budget Adjustments • Ensure that the budget process complies with legal requirements; • Ensure proper budget approval; • Review the process of monthly reporting – budget and actual: – Investigate exceptions (over- and under spending), reasons for such exceptions, as well as actions taken; – Confirm approval for exceptions, where necessary. • Review any significant budget adjustments, excessive movement of funds between programs made at, near, or after year end and the reasons; • Review performance reports for significant non-delivery on set objectives as per strategic plan / significant over- and under spending at end of period; • Review all budget adjustments made at, near, or after year end for proper and timely approval by the legislature, if required. Personnel Costs • Review travel and expense reports for indications of: – Personal expenses having been included; – Claims for accommodation, meals or hospitality that are not in accordance with regulations; – Authorization by someone other than the usual supervisor; – Unusual or unreasonable dates, times or other details related to expenses claimed. 232 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
ISSAI 1240 practice note 240 • Review timesheets for indications of: – Authorization by someone other than the usual supervisor; – Missing, unusual or altered timesheets, especially if recurring for the same employees; – Excessive or unusual amounts of overtime; – Use of unusual or inappropriate time codes or employee classification codes. • Perform substantive testing of payroll accounts for indications of: – Excessive or unauthorized amounts of overtime; – Unusual variations in regard to budget vs. actual figures, or seasonal fluctuations; – Payments made to unusual bank account numbers or accounts in unusual locations (for example more than one payment in a period to the same bank account may indicate fictitious employees); – Comparison of year-end reported earnings for employee / groups of employees to standard compensations levels for the appropriate employee category. • Review hiring procedures and controls and test that: – Advertised open positions have been appropriately authorized; – Positions have been advertised in accordance with regulations (transparency, open and fair competition etc); – Appropriate routines have been followed in the hiring process (interview, references, possible background check, appropriate salary levels etc); – If any indications of close personal relationships, prejudice etc are present that these have been appropriately addressed; – Any complaints received in regard to the hiring process have been appropriately handled. The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements 233
Page 1 and 2: ISSAI 1240 The International Standa
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Page 19 and 20: International Auditing and Assuranc
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ISSAI 1240

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