. A potential control for managing the risk of employee fraud is to send employees on mandatory vacations.

. A potential control for managing the risk of employee fraud is to send employees on mandatory vacations. Explain the relation of that control with the payroll function. Why will it be a good idea to require the payroll clerk, who writes checks, to go on a vacation? Provide examples from real life and discuss.





2. The auditors of Annaly mortgage discovered that a lot of fictitious employees were on the payroll system and were being paid salaries. Neither the CFO nor the Payroll manager was aware of the fraud. What could be the possible reasons for the fictitious employees being added on the payroll system? . A potential control for managing the risk of employee fraud is to send employees on mandatory vacations.
Without an independent audit or financial controls such as two signatories or other checks and balances, there is always a risk of employee dishonesty in departments that are able to write checks. Some attempts at covering up dishonesty are hard to sustain when the perpetrator goes on vacation and a competent substitute has full access to the records for a full check writing cycle.





Using your second paragraph as an example, if the payroll person generates checks to fictitious people, they could be cashing these checks alone or with the help of another person by setting up bank accounts in the name of the fictitious employees. Since they set up the account, the signature card would have their own signature on it. They also could transfer the money out of the account in other ways after depositing the checks.