Contract and procurement fraud
Material mischarges can be detected by engaging in the following activities
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- LABOUR MISCHARGES
| Material mischarges can be detected by engaging in the following activities:
Examine contract and cost files for red flags. Examine material cost transfers, which can include transfers: From government contracts to commercial Through any type of suspense or holding account From ongoing jobs to jobs not scheduled for delivery until a much later date From prior lot work orders to current or future work orders To inventory write-off accounts To scrap accounts Determine if contract costs have exceeded or are expected to exceed the contract value, because they should not be diverted to other cost objectives. Compare contract charges to determine if materials are properly charged to the job (too much or the wrong materials). Examine materials ordered and charged in excess of contract requirements. Examine seemingly unrelated materials charged on routing slips. Examine material standards not updated over periods when there are improvements in manufacturing technology or product design. Compare material costs over a specific period to identify any unusual changes and determine the reason for the changes. Review the standard and actual costs of materials to determine if any significant differences exist between the two. Investigate the contractor to determine ownership and search for any signs of corruption. Scan the general ledger, accounts receivable subsidiary ledger, and sales journal for unusual adjusting entries. LABOUR MISCHARGES In the performance of contracts, labour costs are typically the most significant costs incurred, and they form the basis for estimating labour for future contracts. Labour costs are made up of direct labour charges to the contract and indirect labour charges allocated to the contract through a factor or rate. Direct labour charges are contract costs identified specifically with a contract. In general, direct labour costs are calculated by multiplying all project hours with the labour rates, which are based on actual employee wages or represent wages paid, and they are summarised for all employees within the applicable allocation unit. Indirect labour costs are those identified in two or more cost objectives. Labour mischarging occurs when the contractor charges the procuring entity for work that was not actually performed. Labour costs are perhaps more susceptible to mischarging than material costs because, unlike other items of cost, labour is not supported by external documentation or physical evidence to provide an independent check or balance, and employee labour can readily be charged to any contract. Moreover, the only way to ensure that labour costs are charged to the correct account is to actually observe the work of each employee (to determine which contract they are working), and then review the accounting records to verify the employee’s cost is charged to the proper contract. It should be noted that even though an incorrect labour charge might be an indicator of fraud, it might also be the result of poor business practices or weak internal controls. Download 0.62 Mb. Share with your friends:
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