Page 338 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(iii) Crediting a payment from one customer to another's account and then withdrawing the miscredited
amount.

Verification of balances in customers’ ledger:
Focus on allowances related to goods returns or price differences, and amounts written off as bad debts. Cross-
check the Order Book with the Sales Day Book. Obtain confirmation from customers about their account
balances. Those with zero balances should confirm their account statements to verify genuine entries.
Inventory Frauds-
Inventory frauds focus on the misappropriation of goods and their concealment.
(i) Employees removing goods from premises.
(ii) Theft concealed by marking items as damaged.
(iii) Inventory records manipulated to match actual stock.
(iv) Inflating issued quantities to embezzle raw materials.
(v) Dispatched stocks not recorded in sales accounts.

Verification Procedure for Defalcation of Inventory -
Inventory losses can result from employee theft, often through collusion. To detect such thefts, review the
entire system of goods' receipts, storage, and dispatch to pinpoint system weaknesses. Successful identification
of theft and the culprits requires:
(a) An inventory control system with detailed movement records, or
(b) Sufficient data to create such a record.

Begin the investigation by comparing physical stock quantities with the Inventory Book. Understand the roles
of individuals handling stock to identify any unsupervised single-handed control, which could suggest fraud.

Verify the Inventory Book's entries against the Goods Inward and Outward Registers and related purchase and
sale documents. This can highlight discrepancies in stock receipts and dispatches. Further, compare entries
about returns in financial books with the Inventory Book, checking its totals. Reconcile observed physical
shortages with book discrepancies.

In industrial contexts, verify raw materials' issues and manufactured goods' receipts against relevant
documents. Sometimes, management commits fraud by diverting production, masking the deficit by inflating
wastage. To detect this, the investigator should collaborate with an engineer, considering factors like
production wastage history and materials issued for production versus actual needs. The machinery's hourly
capacity and production cycle time can also provide insights.

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