Question

Which of the following is not a correct statement regarding fraudulent hours?

1) Fraudulent hours occur when an employee reports more time than was actually worked.
2) It is difficult for an auditor to discover fraudulent hours.
3) It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it.
4) To detect fraudulent hours, the auditor should examine the cancelled checks written to the employees.

Answer 1

The fourth statement regarding auditors examining cancelled checks to detect fraudulent hours is incorrect, as auditors typically review time records and work evidence instead.

Step-by-step explanation:

The question concerns fraudulent hours in the context of employee time reporting and audit processes. To clarify which statement is not correct regarding fraudulent hours among the provided options:

1. Fraudulent hours occur when an employee reports more time than was actually worked. This is a correct definition of fraudulent hours.
2. It can be challenging for an auditor to discover fraudulent hours due to the nature of time reporting and potential collusion among employees.
3. It is often more feasible for the client to prevent fraudulent hours with adequate internal controls, such as timekeeping verification processes, than it is for the auditor to detect them after the fact.
4. To detect fraudulent hours, the auditor should review time records and compare them to actual work done, not examine the cancelled checks written to the employees, since this method would not typically reveal discrepancies in reported hours versus hours worked.

Thus, the incorrect statement is the fourth one; auditors do not generally rely on examining cancelled checks to detect fraudulent hours.