Question

It was determined that there was fraud present at Husky Corporation, so you will be auditing the Accounts Receivable of Husky Corporation using ACL to help you perform the audit procedures. The Accounts Receivable general ledger balance as of December 31, 2013, is $4,263,919.52. Your audit will consist of analyzing the unpaid invoices, identifying customers with balances over their credit limit, and aging the unpaid invoices as of December 31, 2013.

I have performed the auditing procedures, I am in desperate need of help with the following questions:

Evaluate the information and results of the audit process. Share the reasons for why and how this case was deemed fraudulent, and provide detail. How were these findings discovered?

Reflect on the intricacies of the case, and make recommendations to prevent it from happening again.

Answer 1

ACL helps in reflecting the trend and pattern for a particular item. And thus helps in bringing to attention any irregularities which may indicate the happening of a fraud.

In the present case by using ACL we will see upto what extent we have unpaid invoices we can use debtors collection period to find out within what period funds are being collected from customer by comparing it with industrial norms we can find out whether we have an excessive collection period. Excessive collection period may reflect fraud as it means sales were made on credit in collusion with customer without identifying his credit worthiness and it's liquidity position.

Also we can analyze balance of customers over and above their credit limit. Credit limit is set for a range of customers and of the balance of customer as appearing in the balance sheet exceeds the credit limit allocated for such customer then it may be a possibility of fraud.

Finally aging of customer will be performed, if it is more than the normal period then we should ask the reasons from collecting team.

In order to avoid such a situation in future we should do the following :-

1. We can have a limit set in the software for each range of customer for their respective credit limit. If the balance of the customer exceeds the credit limit allocated to him then the system should not generate the receipt.

2. We should have a ageing schedule in built in the system as and when the outstanding balance exceeds the days allocated to it , it should keep on reflecting the warning message for collection of amount from customer and should also send the message automatically to the higher official.

E