Question

While performing analytical procedures related to an engagement involving a social services agency of a government entity, the internal auditor noted an unusually large increase in payments to individual recipients who are under the direction of a particular social worker in the agency. Which of the following engagement procedures is the best procedure to investigate this observation?

1) Implement an integrated test facility and monitor transactions throughout the year to identify unusual items.
2) Use generalized audit software to sort payments to recipients by social worker. Then sort the payments by common addresses and names.
3) Use generalized audit software to take a random sample of recipients and investigate by sending confirmations to them to determine whether they had received proper payments.
4) Implement the snapshot approach and tag transactions that are related to the social worker identified with the unusually large increases.

Answer 1

The most appropriate procedure for investigating the increase in payments is to use generalized audit software to sort payments by the social worker and then by common addresses and names. This method identifies patterns that may suggest fraud or errors, and is more directly targeted at the issue than the other options which are more general controls or reactive measures.

Step-by-step explanation:

When an internal auditor observes an unusually large increase in payments to individual recipients under the direction of a particular social worker within a government social services agency, it is vital to investigate the matter carefully to ensure there is no malfeasance or error. Upon considering the given options to probe into the increased payments, the most effective engagement procedure would be to use generalized audit software to sort payments by the social worker and then by common addresses and names. This method allows the auditor to identify patterns or anomalies that may indicate fraud, such as multiple payments going to the same address or individuals with the same name potentially indicating fictitious beneficiaries.

The use of an integrated test facility may also be helpful but it is a more proactive control rather than investigative tool and does not target the issue found directly. Confirmation to recipients is also a valid procedure but may not show underlying patterns in the data if they are not part of the random sample. The snapshot approach is another proactive measure, tagging transactions for review but again may not directly address the escalation in question.

Therefore, the second option which uses audit software to direct analysis towards the unusual activity tied to the specific social worker would be the most appropriate first step. Should this raise further concerns, a more detailed and manual investigation can then be carried out, such as reviewing case files or interviewing staff and recipients, to determine whether there has been any misconduct or errors in the payment disbursement process.