Alaric wrote:Charlottesquare wrote:If a company opens a bank account the bank will require a company Board Minute, copies ought to be in the Minute Book, the auditors ought to review the Minute Book. One would accordingly surely need forged Minutes, not recorded in the Minute Book, for a trail not to be evident that could have been checked.
On the face of it then, there are already procedures in place to guard against the accounting fraud of financing a Company from undisclosed loan facilities.
Shareholders will await reports on how these safeguards were circumvented.
There ought to be such procedures, it is part of the directors' duties to ensure there are, however if say collusion very difficult for any such controls to detect this, collusion can disable controls.
I have never opened a company bank account without providing a Minute to the bank that the directors agreed to open an account/take a loan with said bank, the company will record directors's meetings, the company secretary will have responsibility for the management of all such Minutes.
If there are other additional undisclosed borrowings that are such a surprise to the company that suggests that possibly any such Minutes may not have been signed by the authorised parties but by A N Other(s) and never reached the Minutes records. (perennial audit issue- how do you ensure completeness?)
The catch is the external audit process really cannot be designed to detect fraud (if that is what has occurred), if collusion it is doubly difficult as a lot of controls rely upon separation of duties, the watchdog not bloodhound reference from Re Kingston Cotton Mill Company still likely stands despite its age.
The first line of defence against fraud really needs to be the internal controls of the business rather than the external auditors, the external auditors test the internal controls as described/documented/discerned as operating but subject to that testing they then rely on them re planning their audit scope/extent/approach, if internal controls have broken down re say collusion then the external auditors may not be at fault-the devil will be in the detail, who did what?
https://en.wikisource.org/wiki/Re_Kings ... pany_(No.2)_(1896)
Years ago I used to collect audit fraud stories, my favourite was (cannot remember the company name) one where the company had these enormous oil storage containers, there is a whole line of them, and the auditors are dipping each one to check amount stored. The catch was the auditors were not aware the containers were connected by underground pipework, after the auditors checked one its oil was being pumped into empty ones further down the line which then measured full when checked by the auditors.