FORENSIC AUDIT OF SELECT PAYROLL/OVERTIME PRACTICES

AND RELATED TRANSACTIONS

A Case Study

Presented to

Julieta M. Rodelas, MBA

School of Business Education Faculty

Emilio Aguinaldo College- Manila

In Partial Fulfillment

of the Requirements for Bachelor of Science in Accountancy

in the subject Methods of Research & Technical Writing

Submitted by:

ISABELLE S. BAÑADERA
1st
Semester 2018-2019
 APPROVAL SHEET

This case study entitled FORENSIC AUDIT OF SELECT PAYROLL/ OVERTIME

PRACTICES AND RELATED TRANSACTIONS, prepared and submitted by Ms. Isabelle

Bañadera in partial fulfillment of the requirements for Bachelor of Science in Accountancy in

the subject Methods of Research & Technical Writing, has been examined and is recommended

for acceptance and approval.

JULIETA M. RODELAS, MBA

Adviser
……………………………………………………………………………………

PANEL OF EXAMINERS

Approved by the Committee on Oral Examination with a grade of __________.

EDGARDO A. OCAMPO, CPA

Chairman

NORMAND JOHN G. MIRANDA, CPA ELMAR A. ODIVILAS, CPA

Member Member

Accepted and approved in partial fulfillment of the requirements for Bachelor of Science
in Accountancy in the subject Methods of Research & Technical Writing.

Date December 10, 2018

NORMA G. NUÑEZ, DPA

Dean

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 ACKNOWLEDGEMENT

First of all I would like to thank God for the wisdom he bestowed upon me, the strength,

peace of mind and good health in order to finish this case study.

To my Professor Ms. Julieta M. Rodelas thank you for your guidance, valuable

and constant encouragement throughout the duration of this study. Your valuable suggestions

helped me to make this study a success.

I would also like to thank School of Business Education: Dean Norma Nuñez, Mam

Jerlina Sulit, Mam Catherine Paet, Sir Edgardo Ocampo, Sir Edgar Revillame, Mam Jozolly

Ramos,Sir Michael Martires, Sir Normand Miranda, Sir Elmar Odivilas, Mam Winnie Diaz.

I would like to dedicate this work to my beloved parents and my brother who always

believed in me, always were there and will always be whenever I need them. I owe you

everything.

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 TABLE OF CONTENTS

Chapter I. BACKGROUND OF THE STUDY…………………………………………… 4

Chapter II. ENVIRONMENTAL ANALYSIS…………………………………………….. 8

Chapter III. IDENTIFICATION OF PROBLEM…………………………………………... 11

Chapter IV. ALTERNATIVE COURSES OF ACTION…………………………………… 12

Chapter V. PLANS AND RECOMMENDATIONS……………………………………… 13

BIBLIOGRAPHY…………………………………………………………………………… 14

CURRICULUM VITAE…………………………………………………………………….. 15

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 CHAPTER I BACKGROUND OF THE STUDY

Introduction

Forensic accounting is a rapidly growing field of accounting that describes the

engagement that results from actual or anticipated dispute or litigations.

Forensic Accounting is an investigative style of accounting used to determine whether an

individual or an organization has engaged in any illegal financial activities. Professional Forensic

Accountant may work for government or public accounting firm. Although, forensic accounting

has been in existence for several decades, it has evolved over time to include several types of

financial information scrutiny.

Employee and management fraud, theft and other financial crimes are increasing,

therefore accounting and auditing personnel must have training and skills to recognize those

crimes, both at the state level and the local level to better ensure the states prospect in the area of

fraud prevention, deterrence, detection, investigation and remediation.

Forensic accounting includes the use of accounting auditing, and investigative skills to

assist in legal matters. It consists of two major components. Litigations services that recognized

the role of an accountant as an expert consultant, and investigative service that uses a forensic

accountant’s skills and may require possible court room testimony.

According to the definition developed by the Association of Institute of Certified Public

Accountants forensic and litigation services committee, forensic accounting may involve the

application of special skills in accounting, auditing, finance, quantitative methods, the law and

research. It also involves quantitative skill to collect, analyze, and evaluate financial evidence, as

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well as the ability to interpret and communicate findings.

This case study is based on the actual forensic audit of Metropolitan Transportation

Authority to determine whether high overtime earning workers in Metro-North Railroad’s

Hudson and Harlem Line Signal Construction Unit were appropriately paid.

Background of the Company

The Metropolitan Transportation Authority is North America's largest transportation

network, serving a population of 15.3 million people in the 5,000-square-mile area fanning out

from New York City through Long Island, southeastern New York State, and Connecticut.

The MTA network comprises the nation’s largest bus fleet and more subway and

commuter rail cars than all other U.S. transit systems combined. It provides over 2.6 billion trips

each year, accounting for about one-third of the nation’s mass transit users and two-thirds its

commuter rail passengers. MTA Bridges and Tunnels, which recorded a record 310 million

crossings in 2017, carries more vehicles than any other bridge and tunnel authority in the nation.

The MTA’s provision of safe, clean, efficient public transportation is the lifeblood of the

New York City area, one of the world’s major economic hubs. It opens up employment

opportunities for millions of area residents, linking them to jobs miles from their homes. It

revives old neighborhoods and gives rise to new business corridors. It links millions of residents

and visitors to cultural, educational, retail, and civic centers across the region.

To restore, improve, and expand this irreplaceable public asset, the MTA has committed

some $117.8 billion in capital program funding between 1982 and 2017. This includes the major

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restoration-resiliency projects stemming from Superstorm Sandy in 2012, as well as the

network’s largest expansions in over six decades. The latter include the Second Avenue Subway,

Phases 1 and 2; the extension of the 7 Line to the Javits Convention Center; LIRR’s East Side

Access to Grand Central Terminal; and the expansion of the LIRR Main Line.

As the MTA continues to improve and expand under its $30 billion 2015-2019 Capital

Program, it is accelerating critical improvements to its century-old subway system under the

Subway Action Plan, announced in July 2017, which aims at both immediate performance gains

and a thoroughly modernized subway system to serve New York in the 21st century.

A public-benefit corporation chartered by the New York State Legislature in 1968, the

MTA is governed by a 17-member Board. Members are nominated by the Governor, with four

recommended by New York City's mayor and one each by the county executives of Nassau,

Suffolk, Westchester, Dutchess, Orange, Rockland, and Putnam counties. (Members representing

the latter four cast one collective vote.) All Board members are confirmed by the New York

State Senate.

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MTA Board Members

MTA Board Members

Fernando Ferrer
Acting Chairman

Andrew Norman Randolph Ira David Scott

Albert Brown Gluckman Greenberg Jones Rechler

Susan Charles Mitchell Susan Charles Mitchell

Metzger Moerdler Pally Metzger Moerdler Pally

Vincent Polly
Scott John Andrew Lawrence
Tessitore,
Rechler Samuelsen Saul Schwartz Smith
Jr.

Veronica Peter Carl Neal

Vanterpol Ward Weisbrod Moore

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 CHAPTER II ENVIRONMENTAL ANALYSIS

Internal Environment

The MTA encompasses seven constituent agencies, including the Metro-North Railroad

(Metro-North), which operates a commuter railroad between New York City and parts of upstate

New York and Connecticut. The Hudson and Harlem Line is part of Metro-North. The Line’s

Signal Construction Unit has 30 employee.

Fatigue is estimated to be at least a contributing factor in one of every four serious human

factor caused train accidents. Working excessive hours often leads to employee fatigue. The

federal Hours of Service statute (Statute) was established in 1907 to improve railroad safety by

limiting the number of hours certain railroad employees, such as engineers and conductors, may

work within a designated time period, as well as requiring a mandatory rest period.

The Statute states that covered employees can work up to 12 hours, plus an additional

four within a 24-hour period in emergency situations and then they must take 10 hours off. These

employees cannot perform routine work (routine repairs, maintenance, or inspections) under the

emergency provision.

There are several types of payments employees can receive, depending on labor

agreements and their job title. These payments can include straight pay, which is paid when

employees work their regular work hours; premium pay, which is calculated at time-and-a-half

(we call this overtime pay) and Hours of Service payments.

Some labor agreements say employees covered by the Statute can receive Hours of

Service payments for the rest hours they do not work if those hours coincide with their regularly-

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scheduled work hours. To acknowledge this time, supervisors prepare attendance records using a

code called Hours of Service. Assistant supervisors sign these attendance records and submit

them to the payroll office to initiate payroll payments.

In July 2009, Metro-North employees started using a new timekeeping system

(KRONOS). This system requires employees to use a time clock to punch in and out upon their

arrival to, and their departure from work. If an employee does not punch in or out, an exception

report must be completed by a supervisor in order for the employee to be paid for all claimed

hours. The exception report authorizes the payroll office to manually override KRONOS and

enter start and/or end times.

External Environment

Public transit contributes in a specific but very useful way to the greater efficiency of

movement in metropolitan areas through its intrinsic characteristics, public transit generates

complex, but very important, economic benefits. Public transit reduces the unit cost of user trips,

decreases the travel time of non-users, increases the pool of workers and consumers for

companies, and mitigates the harmful effects of pollution. These benefits tend to increase quickly

with the size of an area. The more populated the area, the greater the benefits.

The action of the U.S. chambers of commerce reflects an awareness that has been

growing for the past ten years in the United States. The chambers of commerce recognize that

public transit is important from an economic standpoint and that it will continue to be so if we

consider:

1. The increased concentration of economic activity in metropolitan areas and its

implications for the fluidity of goods and individuals.

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 2. The attraction and retention of a highly qualified labor force and its implications for
the quality of the living environment.

3. The increased importance of air quality and its implications for transport modes.

4. The ageing of the population and its effects on the modes of travel of a growing
number of people.

5. The renewed concerns for energy security and its implications for more energy-
consuming modes of transportation.

6. The pressures on public finances and the need to optimize investments in public
infrastructures by densifying regions.

Passenger transport by railway, especially the local, suburban routes, is regarded not only

as a business but also as a social function. It is a part of the state program that ensures the public

transportation required to satisfy the needs for work, daily, leisure and tourism communication.

The railway transportation is usually supported by the state, and its role is important for

the state’s economic and social sector. An appropriately set infrastructure of passenger

transportation encourages citizens’ mobility, allows companies to disperse the production

divisions in a rational way, allows to develop regional economic growth, specialization etc. This

influences employee productivity, their living standards, in other words, a passenger transport

system influences not only the economy but communities and their members as well.

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 CHAPTER III IDENTIFICATION OF PROBLEM

Problem 1

Supervisors scheduled certain employees extended 12-hour overnight shifts, so they

could complete work and would have to take the required 10 hours of rest during their
regular work shift.

Problem 2

When there was inconsistent attendance information in kronos and no corresponding

exception reports, payroll staff still processed the payroll.

Problem 3

Employees were paid for Hours of Service even though they did not work during those
hours. The managers and supervisors were aware of this practice.

Problem 4

Supervisors scheduled certain employees extended 12-hour overnight shifts, so they

could complete work and would have to take the required 10 hours of rest during their
regular work shift. The supervisors then signed and submitted attendance records to the
payroll office indicating that their employees were entitled to Hours of Service payments.

Problem 5

Supervisors scheduled themselves for the 12-hour shifts and then claimed they were
entitled to the Hours of Service even though they do not appear to be covered by the
Statute. The two assistant supervisors signed the attendance records for themselves and
their boss. These two assistant supervisors received a total of $34,261 in payments during
the audit period for time they did not work.

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 Chapter IV- ALTERNATIVE COURSES OF ACTION

Solution to Problem 1

Study the cost benefit and feasibility of rearranging signal workers’ schedules shift so
that unnecessary overtime pay is stopped.

Solution to Problem 2

Payroll staff should have reconciled attendance records, exception reports, and kronos.

Solution to Problem 3

Discontinue Hours of Service payments and related premium pay for employees who are
not entitled to it.

Solution to Problem 4

Clarify and communicate which employees are entitled to compensation for Hours of
Service and which are not.

Solution to Problem 5

Discontinue the practice of supervisors signing attendance records for themselves and
determine whether other corrective action or disciplinary action is warranted

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 CHAPTER V PLANS AND RECOMMENDATIONS

Metropolitan Transportation Authority (MTA)

1. Establish adequate control system and continuously monitor Metro North Hudson and Harlem
line to check if the compensation figures is in line with similar units and if not they should
conduct an investigation to determine the cause of problem.

2. Adhere to payroll controls that are designed to provide checks and balances such as reconciling
all exceptions between KRONOS and manual attendance records.

3. Significant payments for overtime can be avoided if Metro-North scheduled regular

work hours for certain staff during the off-peak hours.

4. Regularly check if supervisors and managers signs the attendance records by themselves.

5. Investigate the inappropriate payments and take appropriate corrective action including
disciplinary action, recovery of payments, and adjusting pension benefits.

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 BIBLIOGRAPHY

Okoye, E.I. Ph.D, Fiia, Fsm, Fcna & Gbegi, D.O. M.Sc, Mba, B.Sc, Can.
“Forensic Accounting: A Tool for Fraud Detection and Prevention in the Public Sector.
(A Study of Selected Ministries in Kogi State)” hrmars.com/admin/pics/1671.pdf

Office of the New York State Comptroller, Division of State Government Authority.
“ Metropolitan Transportaion Authority: Forensic Audit of Select Payroll and Overtime
Practices and Related Transactions” osc.state.ny.us/audits/allaudits/093012/10s60.pdf

Vytautas Lingaitisa & Gintaras Sinkevičius.

Passenger Transport by Railway: Evaluation of Economic and Social Phenomenon.
https://www.sciencedirect.com/science/article/pii/S1877042813055390?via%3Dihub

Chamber of Commerce of Metropolitan Montreal

Public Transit: A powerful Economic development Engine for the Metropolitan Montreal
Region.
https://www.ccmm.ca/documents/memoires/2004_2005/BTMM_PublicTransit_study.pdf

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 CURRICULUM VITAE

1. Personal Information

Name: Isabelle S. Bañadera

Birthdate: June 4, 1992
Birthplace: Mandaluyong City
Civil Status: Single
Parents: Ruben B. Bañadera & Carmen S. Bañadera

2. Educational Qualification

Year Completed: 2013

Course: Bachelor of Science in Customs Administration
School: Emilio Aguinaldo College-Manila

Year Completed: June 2016- Present

Course: Bachelor of Science in Accountancy
School: Emilio Aguinaldo College-Manila

3. Civil Service Eligibilities

Licensed Customs Broker

4. Experiences
Year Employed: May to June 2012
Position: On the job trainee- Customer Service
Company: Le Soleil International Logistics Company

5. Scholarships/Grants Received

Academic Scholar 1st Semester, School Year 2018-2019

6. Membership in Professional and Scientific Organizations

Chamber of Customs Brokers, Inc.

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7. Seminars/Training/Workshops Attended

Diploma Course in Customs Administration and Logistics Management Series 32

Customs Compliance on Rules of Origin and Frequently Monitored Commodities
Orientation on the 2017 HS-AHTN Amendments

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