FORENSIC AUDIT REPORT

ON
EMBEZZLEMENT OF FUNDS IN
PURCHASING

FROM
CA ANSHUL GOYAL
MEMBERSHIP NO 425520
FAFD BATCH 187
I. Background

Company X received an anonymous telephone call from an unidentified man who claimed that he was a
former supplier. The caller alleged certain improprieties in the bidding and procurement process.

Based upon this, a forensic audit was conducted, which included reviews of relevant records and
interviews of appropriate personnel.

II. Scope

The objective of the Forensic Investigation Team was as follows:

• Determining whether the purchasing policies were adhered in purchasing
• To perform selective computer assisted auditing techniques procedures on the company
supplier’s database.
• To report on other non-compliance issues that came to our attention during the
investigation.

III. Executive Summary

The fraud examination commenced when Mr Y, CEO, received a telephone call from an unidentified man
who said that he had been a long-term supplier for sundry office supplies and paper. The caller said that
ever since Mr Z had taken over as Purchasing Manager, he had been gradually “squeezed out” from doing
business with Company X.

The Fraud Examination Team reviewed selected purchases and conducted interviews of key participants
and employees who we believed to have information regarding this. The Team reviewed purchasing
guidelines, personnel files of interviewees, and various financial documents.

After obtaining sufficient documentation, the Team interviewed Mr. Z (Purchasing Manager), who gave a
full signed confession to his misdeeds.

IV. Approach

Fraud Examination Team Members

CA Anshul Goyal, CA Parul Bansal, CA Caman Agarwal and CA Pramila Gupta

Procedures
As part of the examination of this matter, the Team took the following actions:
• Obtained, reviewed, and analyzed memoranda pertaining to the anonymous call described
previously.
• Obtained, reviewed, and analyzed Company Books’ financial documentation, including purchase
records and invoices.
• Performed selective computer assisted auditing techniques procedures on the company supplier’s
database.
• Obtained, reviewed the company purchasing policies and verifying whether these policies had been
adhered at the time of purchasing.
• Interviewing related personnel to find out any information necessary for this forensic audit.

Individuals Interviewed:

The following individuals were interviewed in person by members of the Fraud Examination Team:
• Mr. A (Chief Financial Officer)
• Mr. B (Purchasing Agent)
• Mr. C (Co- Worker of Mr. Z)
• Mr. D (Accounts Payable Clerk)
• Mr. E (Warehouse Manager)
• Mr. F (CFO of Century Corporation)
• Mr. Z (Purchasing Manager,)

V. Findings

Based on the documents reviewed, information collected, and interviews conducted during the course of
the fraud examination, the Team finds as follows:

The documents and information reviewed and interviews conducted by the Fraud Examination Team
during the course of the examination indicate that Mr. Z did knowingly embezzled funds. During the
fraud examination, the Team analyzed financial documents and conducted interviews to corroborate the
statements of an anonymous caller. The following is a summary of the evidence and information
supporting the Fraud Examination Team’s findings:

On July 20, 2019, Mr. A (CFO of the company) was interviewed. The purpose of the interview was to inform
him of the proposed fraud examination, obtain his approval, and secure information from him regarding the
purchasing process. In addition to summarizing his responsibilities regarding purchasing Mr. A stated that he
has already sent a memo to all division heads informing them that all purchases over 1,00,000 would from then
on require at least three written bids.
On July 21, 2019, an interview was conducted with Mr. B, (Purchasing Agent). After summarizing the
purchasing process, he stated that he had no knowledge of any improprieties committed.

The next interview was with Mr. C (Co-Worker of Mr. Z), who made his statement which include the
following:-
 After Mr. Z was promoted to Purchasing Manager, he began favoring Century Paper company for
paper purchases.
 On two occasions in 2018, Mr. Z authorized prepayment on substantial purchases from
century paper company, even though Mr. C had complained about supplier’s poor quality and
services.
 Other vendors had complained of being squeezed out of business after Mr. Z became manager.

Mr. C referred the Team to Mr. D in Accounts Payable for further information about the orders. Mr. D was
interviewed and provided copies of the two prepaid invoices of a Century Paper Company, the amounts of
which were 95000/- and 99000/-. In addition, Mr. D said that Mr. E in Warehouse would be able to verify if the
two shipments had ever been received.

On July 22, 2019, Mr. E, the Warehouse Manager, was interviewed and verified that the two shipments in
question were never received.

On July 23, 2019, Mr. F, the CFO of Century Paper Company, was interviewed and stated he was unable to
provide any copies of actual financial information, but that we had no record of any receipt of payment for the
invoices in question, nor any record that such orders had been placed or shipped. In addition, Mr. F said that
Century had no corporate accounts at the bank at which the cheques for these prepaid invoices were deposited.
Mr. F also stated that the correct corporate name is Century Corporation, not Century Paper Company, as the
endorsements indicated.

On July 24, 2019, Mr. Z was interviewed. After being confronted with questions and evidence regarding the two
payments and the bank account to which cheques were deposited, Mr. Z voluntarily gave a statement attesting to
his involvement in the embezzlement of funds He attested to the following:
 He had authorized the payment of two invoices for the amounts of 95,000 and 99,000/- but no
product was shipped on the invoices. Mr. Z established a bank account in the name of Century
Paper Company and deposited the cheques to this account and then embezzled the funds.

VI. Conclusion

This report reflects that Mr Z, a purchasing manager furnished a signed statement on July 24, 2019, indicating he
had accepted at least 21,97,770/- in commercial bribes and other illicit income.

The statements made by Mr. Z are corroborated by the documentary evidence and the interviews of other
witnesses as described.
VII. Impact to Company Books

Over the years, Mr Z misappropriated an estimated amount of 21,97,770/-

VIII. Weak Internal Control

Internal control at company X were not adequate. A full review of internal controls should be
conducted to determine how such incidents can be detected in the future. Some weakness in
internal controls which promoted farud are as under:-

1. There were no requirement for written bids for purchases below 1 Lac.
2. Proactive action should be taken for the long outstanding prepaid invoices.
3. Information should be given to ware house manager on the time of pre-payment of any
invoice so he can follow ups for the delivery of the goods.
4. There should be rotation of duties.
5. Person ordering the goods and person authorizing the payment should be different.

End of Report