Page 337 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Types of Money Embezzlement.
Cash receipts.
Cash receipts - such as holding back cash sales, collections by travelling salesmen, V.P.P receipts, or sales of
scrap. The methods used to cover up such embezzlements include:
(i) Issuing a receipt to the payee for the full amount collected and entering only a part of the amount on the
counterfoil.
(ii) Showing a larger cash discount than actually allowed.
(iii) Adjusting a fictitious credit in the account of a customer.
(iv) Adjusting a cash sale as a credit sale.
(v) Writing off a good debt as bad to cover up the amount collected.
(vi) Short debiting the customer’s account.
(vii) Under-casting the receipts side of the Cash Book.
(viii) Carrying over a shorter total of the receipts from one page of the Cash Book.
Verification of Cash Receipts: Evidence of income received should be scrutinised, including inventory, sales
summaries, rental registers, and counterfoils or receipts. Comparing details of cash deposited with those shown
in the Cash Book is also important.
Cash payments
Inflating cash payment – Cash payment frauds include:
(i) Double payment or false invoice payment.
(ii) Personal expenses masked as business expenses.
(iii) Withdrawing unclaimed credits or falsely credited amounts.
(iv) Falsely adjusting refunds and withdrawing the balance.
(v) Misappropriating excess amounts due to wrong wage sheet totals.
Verification of Cash Payments: Scrutinise evidence of cash payments, including party acknowledgements.
Confirm amounts if alterations are detected on receipts. Examine payments by bearer cheques. Review wage
recording for possible over-totalling and dummy workmen entries. Review the system for ordering and
receiving goods to ensure no payment for unreceived supplies. Confirm payments made to partners or
Directors.

The Petty Cash Book should be vouched. Ensure that salary and wage payments were made to actual
employees. Check all bank withdrawals against the bank's passbook. Verify all bills receivable or payable
against the Bills Books.

Frauds through suppliers’ ledger
Frauds through suppliers’ ledger -
(i) Adding fictitious or duplicate invoices as purchases and misappropriating payments made for these
invoices.
(ii) Suppressing Credit Notes issued by suppliers and withdrawing unclaimed amounts.
(iii) Withdrawing amounts unclaimed by suppliers by showing they have been paid.
(iv) Accepting invoices at prices higher than market rates and collecting the excess amount from suppliers.

Verification of balances in suppliers’ ledger -
Vouch the Purchase Journal with the Goods Inward Book and suppliers’ invoices to confirm correct credits.
Request all suppliers for account statements to verify outstanding balances and ensure adjustments and rebates
are authorized. Review internal control related to purchase orders and potential collusion with suppliers.
Customers’ ledger -
(i) Using the ‘teeming and lading’ method: misappropriating funds collected and offsetting it with another
customer's payment.
(ii) Misappropriating funds and adjusting a customer's account through allowances or rebates.

www.auditguru.in 17.15