Hi

Do you know how account auditing is done? I'm not talking about auditing of bank account because that would be complex. Some days ago someone was saying that auditing was being done in their company and auditors come every six months to do the auditing. That's not a big company as far as I know. Suppose, the company had renovation like paint, new furniture etc. The person who was responsible for this renovating task used some of the company's funds fraudulantly. I will explain how. Suppose, in the records it was shown that furniture was bought for $ 10,000 although in reality it only cost $5,000. Some of the money wa also paid to the furniture company so that they can substantiate the 'falsified' figure of $ 10,000. The same goes for other things such as funds spent on new paint. How would auditors know that there have been any irregularities in the funds? If they won't be able to trace the fraud, then what's the use of having them? Please edify me on this. Thank you.
Regards
PG

 

The big "A" word got you nervous? lol, just kidding. for consumables I don't think they could prove anything physically like with furnature, but there should be a paper trail. most companies keep reciepts on file. I keep my own copies of reciepts for the things that I order just in case those whose job it is to do that, fail to do their job and I get asked questions.

 

Hi

Suppose, in the records it was shown that furniture was bought for $ 10,000 although in reality it only cost $5,000. Some of the money wa also paid to the furniture company so that they can substantiate the 'falsified' figure of $ 10,000.

A good auditor has a sense of what things should cost. If you you have an isolated discrepancy like this, he probably won't catch it. However, if there is a systemic problem and this kind of thing happens often, the auditor is going to see a lot of red flags that get him suspicious. He may then want to trace the full paper trail and is likely to uncover the fraud.

 

The big "A" word got you nervous? lol, just kidding. for consumables I don't think they could prove anything physically like with furnature, but there should be a paper trail. most companies keep reciepts on file. I keep my own copies of reciepts for the things that I order just in case those whose job it is to do that, fail to do their job and I get asked questions.

Thank you, Strantor.

I googled for the meaning of "big "A" word" but couldn't find any right answer. One close hit was this. Would you mind telling me what it is, if possible?

When I said:

Some of the money wa also paid to the furniture company so that they can substantiate the 'falsified' figure of $ 10,000".

what I was trying to say that the furniture company would change the figures on receipts to make them genuine.

A good auditor has a sense of what things should cost. If you you have an isolated discrepancy like this, he probably won't catch it. However, if there is a systemic problem and this kind of thing happens often, the auditor is going to see a lot of red flags that get him suspicious. He may then want to trace the full paper trail and is likely to uncover the fraud.

Thanks, Steve.

That means it is possible to fool the auditors. If you say I would agree but personally I don't think auditors would have that much good sense of what things cost.

I know of someone who had a non-performing loan and he wanted to default in intentionally so that he didn't have to return the loan money to the bank. It was big loan. Someone was mentioning that bank officials were also involved in this loan fraud and even when they cleared the loan they knew it won't be returned. The loan money was distributed between the all the people involved. But the bank records didn't show any discrepancy and all the requirements were fulfilled, therefore the auditors didn't find anything wrong. Is this scenario possible in your opinion?

Thank you.

Best wishes
PG

 

Thank you, Strantor.

I googled for the meaning of "big "A" word" but couldn't find any right answer. One close hit was this. Would you mind telling me what it is, if possible?

__Audit____

 

“You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time.”

 

You can't push a rope.

Sure you can, dip it water followed by liquid nitrogen. It will then push just fine.

Reminds me of a joke.

Grandpa was watching his 5 year old grandson playing in his yard. The youngster had pulled a worm out of the ground and was trying to push it back in, with predictable results. He decided to have a little fun with the boy.

"If you can figure out how to push that worm in the hole I'll give you $10", he said.

This focused the lads attention. He looked at the worm, then at the hole, then at the worm. Still holding the worm he ran into the house and grabbed his grandma's hair spray. He sprayed the unfortunate worm down, pulled it straight, sprayed it again, and in the hole it went.

"Aren't you a smart lad", said Granddad as he paid the boy his $10.

Next day he paid the kid another $10.

"What's that for?" the kid asks.

"Oh that," says grandpa, "That was from your Grandmother!".

 

using your example,

you know fraud was committed by an employee.

You paid 10k, 5k for furnature, 5k fraud (case pending or prosecuted). You can set the record straight ... the tax record ... as you probably have taken the 10k off as a capital expense. Reducing your capital expense to 5k and recording the 5k, caused by fraud as a loss ... and you can report the return of that cash as a gain when you have access to it --- if ever.

Just be straight with the auditors. They understand some minor errors. Remember, in the U.S., the definition of a small business is annual revenues in the millions.

 

at some point, someone agreed to buy a $10K piece of furniture, and recieved a reciept for monies paid. That's all the accountant needs.

If there was a suspicion of fraud, then you call the police.

I can write tens of thousands of dollars in checks to 'service' providers, and never end up with tangible assets, and the taxman can further disallow them as expenses to offset revenue.

 

Just like fast food we now have fast audits of our money affairs to
get that fast refund check.Unless you have a tax advisor its hard
to get around slick deals.Very few people use tax advisors that
know the tax code that help you with built in loop holes.The tax
companies won't allow you to put there reputation with the I.R.S.
on the line. They have software to catch bad deductions.

 

For a retailer like CVS or Visionworks they have someone come in with portable pda barcode readers once a year or 6 months. They they go isle to isle scanning every box or item they have. That gets uploaded to the company that does the inventory and they compare receipts and sales with actual product.

 

Speaking of audits... I had a motor catch on fire yesterday in my plant. I discovered that the root cause was that the 30+ year old motor starter contactor had developed a weak coil, which was no longer able to close the contacts all the way. This caused 2 of the contacts to arc and fuse shut, so when the contactor dropped out, it single phased the motor. Because the starter overload device had improperly sized heater elements (about 4X higher value than specified), the overload never tripped and allowed the motor to catch fire. I briefed this to my supervisor, and his supervisor, and his supervisor's supervisor, and one more guy one level above him, whom I had never seen before yesterday. We all gathered around and had a meeting about it and it was decided that a plant-wide audit of all the contactor/starter devices was in order and that I am the man for the job. Now, thanks to you and your diabolical jinx (joke) I have to dismantle hundreds, potentially thousands of starters and inspect each contact and coil and determine if the elements are sized properly.

 

Speaking of audits... I had a motor catch on fire yesterday in my plant. I discovered that the root cause was that the 30+ year old motor starter contactor had developed a weak coil, which was no longer able to close the contacts all the way. This caused 2 of the contacts to arc and fuse shut, so when the contactor dropped out, it single phased the motor. Because the starter overload device had improperly sized heater elements (about 4X higher value than specified), the overload never tripped and allowed the motor to catch fire. I briefed this to my supervisor, and his supervisor, and his supervisor's supervisor, and one more guy one level above him, whom I had never seen before yesterday. We all gathered around and had a meeting about it and it was decided that a plant-wide audit of all the contactor/starter devices was in order and that I am the man for the job. Now, thanks to you and your diabolical jinx (joke) I have to dismantle hundreds, potentially thousands of starters and inspect each contact and coil and determine if the elements are sized properly.

You blaming me?! I have always been a bit of devil!

Best of luck that horrendous task!