Monday, 07th February 2023

To
The Managing Director Mr. XYZ
ABC Automobiles Private Limited
New Delhi

Subject: ABC Automobiles Private Limited Forensic Audit of the Accounts Receivable

Dear Sirs:

Thank you for the opportunity to work with you and complete this forensic engagement for
ABC Automobiles Private Limited (or ABC). We have conducted our investigation pursuant
to our engagement letter dated 01.01.2023 between the ABC and our firm.

We have performed the procedures enumerated below, which were agreed to by the Mr. XYZ-
Managing Director, ABC. This report summarizes our procedures, findings, and
recommendations as it relates to our assistance with the evaluation of bookkeeping, records
and internal control irregularities at Company in determining the fraud risk and the amount
involved therein.

Forensic engagement was conducted in accordance with The Forensic Accounting and
Investigation Standard and Laws and Regulations established by the Institute of Chartered
Accountants of India. The scope of this engagement is outlined in the body of our report. The
sufficiency of these procedures is solely the responsibility of those parties specified in this
report. Consequently, we make no representation regarding the sufficiency of the consulting
procedures described below either for the purpose for which this report has been requested or
for any others purpose.

This Report is intended solely for the Office of the ABC Automobiles Private Limited, for
their internal use and benefit and are not intended to nor may they be relied upon by any other
party (“Third Party”).

We appreciate the opportunity to assist you with this matter.

For ZZZZ & Associates
Chartered Accountants

CA PQR
Membership No. xxxxxx
Date:07-02-2023
A. BACKGROUND SUMMARY

ABC Automobiles Private Limited is a Private Limited Company having its registered office
at 96/A1, New Delhi-110034, are an multi brand second-hand card dealer and also authorised
to run an Authorised service station for the servicing and maintenance of multi brand cars.

The Organisation structure of the company was as follows:

Sr. No Name Position Division

1 XYZ Managing Director Operation
2 Harpreet Jain Directors Finance
3 Sudhir Sethi Head of Department (HOD) Finance
4 Madan Kumar Head of Department (HOD) Sales
5 Ankita Mittal Head of Department (HOD) Human Resources
6 Manish Thukral Head of Department (HOD) Information Technology
7 Rajkumar Head of Department (HOD) Admin

Company was incurring loss since last 2 years and Promoter were infusing fund in the
company to fill the fund gap. Despite the several infusions, and company being turning out to
be profitable in the year under audit, the fund gap was still visible on the Fund Flow
Statement.

And it was affirmed in November 2021, when a party, who booked a car from our showroom,
had approached the company for cancellation of their booking and requested to refund the
booking amount after deducting the charges if any. On perusal of records from the
department, it was observed that the payment details of said debtors was adjusted with some
other debtors, which resulted into susceptibility of Receivables lapping.

When they asked the accountant to submit his report on such matters, he failed to submit the
reply and stopped coming to the Company. This raised a red flag on accountant authorities.
Later on, Finance Director was also made aware by the Banker about the company low bank
balance and that were insufficient fund to honour the payment.

A meeting of the Board of the Company was called for by the Director Finance to update
about the financial irregularities at Company. Director Finance also informed that the
accountant had left the job and did not return to his duties and based upon their preliminary
investigation, they are of the view that the matter needs to be investigated. Accordingly, it was
decided in the meeting to investigate the matters and the Secretary was instructed to freeze the
related bank account as a precautionary measure and to appoint a Forensic Auditor to
investigate and in determining the fraud risk and value of funds involved, and the causes of
fraud.
 B. PURPOSE / SCOPE OF ENGAGEMENT
Our firm ZZZZ & Associates, Certified Forensic Auditor was engaged on 14th January 2023
by Harpreet to investigative and conduct forensic audit into the alleged possible fraud and its
impact upon the company financial position.
The purpose of this engagement was
 to conduct a limited scope forensic examination of the Company’s funds flow statement
 to find the reason for shortage in cash flows
 to determine whether the Company had suffered from theft, fraud, or embezzlement by their
former ACCOUNTANT and
 to what extent, for the period covering approximately 2 years (Jan 1, 2021 through December
31, 2022) Auditor will also provide all other observations relevant to cash flows and
operations of business along with recommendations.

C. AUDIT METHODOLOGY:
I. Audit Process :
The Process of forensic audit was:
 Interviewing with employees, meetings with management personnel in order to
develop an understanding of the significant processes and workflows in these
departments as related to the objective of our audit.
 Collecting & reviewing all document and evidence including:
 Cash book and Bank Book.
 Bank reconciliations.
 Credit Card Sales and its Reconciliation
 General ledger detail and year-to date trial balances
 Investigate and Analysis of remittance to company’s Accounts
 All daily sales report g. Customer File
 Relevant policies, procedure manuals, and organizational charts
 Annual Sales Tax & Service Tax returns
 Access to computers, telephone records and emails of all personnel
 Identify fraud risks at the Company’s for the Period.
 To provide management with facts and provide evidence for litigation

II. Team Members

Fraud Examination Team Members

1. Mr. PQR Certified Fraud Examiner & Chartered Accountant

2. Mr. A Shukla Computer Expert and Certified Microsoft Expert

3. Mr. D Bhatia Handwriting Expert

4. Dr. Lav Gupta Acclaimed Psychologist

5. Mr. Prasad Advocate, Legal Expert

6. Mr. Piyush Tyagi Other working staff

III. Individuals Interviewed:
The following individuals were interviewed in person by members of the Fraud Examination
Team:
 Harpreet Jain – Director finance
 Sudhir Sethi – HOD finance
 Madan – HOD Sales
 Ankita – HOD HR
 Manish Thukral – HOD IT
 Rajeev Chaudhary – Administration Head
 Rajkumar – HOD Admin
 Mr Grunish – Cashier
 Since the accountant had already left the job and was not available at the time
of interview, therefore, our procedure did not include an interview of
accountant.
 We conducted our interview on 21st & 22nd Jan 2023.

IV. Collecting & reviewing all document and evidence including:

The audit team took digital image of the system hard disk in presence of Mr. Principal and
Admin Head. It was kept securely in sealed bag and signatures were taken of the 2 witnesses.
The same were preserved with the audit team office in a safe locker. The audit team also made
clone of the hard disk so that it can be checked and verified later on.
The Audit team also collected the following documents:
 Audited annual financial statements
 General ledger detail and year-to date trial balances
 Complete Books of Accounts Master file
 Relevant policies, procedure manuals, and organizational charts.
 Access to computers, telephone records and emails of all personnel.
 Petty Cash Receipts/Payment Vouchers/ and cheque leaf.
 HR Records of Accountant for background screening.
 Credit Card Sales and its Reconciliation.
 All daily sales report.
 Annual Sales Tax & Service Tax returns.
 Bank reconciliations.

V. Audit Implementation Approach

 Transaction Mapping
 Interviews of various employees, vendors and management
 Data Mining
 Review of cash book, bank book, and financial statement
 Expert Opinion
 Fund flow and cash management

D. KEY FINDINGS
 We started with background check and found that he was also involved in the financial
frauds at the previous job and his case was pending indictment and all the police
investigation process was still going on. In the absence of proper background screening,
 the same things were gone unnoticed. Thus, his motive was very clear to defraud the
company and gain as much as he can.
 While reviewing the policy, we found that person who received the cheque/cash receipts
also deposited the same into Bank was same i.e. Accountant. It showed lack of control in
place to ensure proper segregation of duties.
 Case of receivables lapping.

While reviewing the bank reconciliation, we observed following discrepancies:

Sr. Bank Details Received from Party Adjusted against Amount

No
1 Cheque No 00056 Mr. Amit having Mr. Kundan having invoice 500000
dated 15.01.2021 invoice no no MAPL/2020-21/969
MAPL/2020-21/985
2 RTGS dated Mr. Raghav having Mr. Jatin Kr having invoice 250000
30.04.2021 invoice no no MAPL/2021-22/69
MAPL/2021-22/78
3 Cheque No 82556 Mr. Dev having Mrs. Revti having invoice 150000
dated 25.11.2021 invoice no no MAPL/2021-22/512
MAPL/2021-22/568
4 Cheque No 71520 Mr. Sanjeev having Mr. Kamal having invoice
dated 17.1.2022 invoice no no MAPL/2021-22/890 175000
MAPL/2021-22/985
5 Cheque No 54512 Mr. Raj Kumar Mr. Dhirendra having 55000
dated 27.05.2022 having invoice no invoice no MAPL/2021-
MAPL/2021-22/149 22/125
6 Cheque No 00056 Mr. Manohar having Mukesh Aggarwal having 500000
dated 15.04.2022 invoice no invoice no MAPL/2021-
MAPL/2021-22/52 22/42

Cases of Dishonor Cheques

We have also observed few cases where cheque received from Debtors were dishonored /
bounced and returned back to the accountant, but Accountant did not report the same to
Management or HOD-Finance and Sales Department and retained the same and adjusted the
receivables’ part against the amount received from Management as capital infusion.

Sr. Amount received from Adjusted against Cheque Details

No Promoter as unsecured Loan
1 Rs. 500000 dated 27.07.2021 Mr. Manish having invoice no 154520 dated 15.07.2021
MAPL/2021-22/349
2 Rs. 1000000 dated 27.02.2022 Mr. Neeraj having invoice no 698540 dated 27.02.2022
MAPL/2021-22/952
3 Rs. 450000 dated 15.11.2022 Mr. Shashi Mathur having 545542 dated 15.11.2022
invoice no MAPL/2021-
22/768
 Cases of Credit Card Fraud
During our investigation process of Credit card reconciliation, our observations were listed as
below:

Sr. Invoice No Date Received Shown Remarks as per

No in Cash Received reconciliation
against
credit
card
1 MAPL/2020- 01.01.2021 25450 25450 Amount received only 2452
21/925 and rest is adjusted against
insurance proceeds
2 MAPL/2020- 05.03.2021 58920 58920 Amount received only 5820
21/1125 and rest is adjusted against
insurance proceeds
3 MAPL/2021- 26.11.2021 67580 67580 Amount received only 6700
22/869 and rest is adjusted against
insurance proceeds
4 MAPL/2021- 31.12.2021 76981 76980 Amount received only 7620
22/963 and rest is adjusted against
insurance proceeds.
5 MAPL/2021- 17.03.2022 16520 16520 Amount received only 6520
22/1251 and rest is adjusted against
insurance proceeds
6 MAPL/2022- 16.09.2022 31206 31206 Amount received only 3120
23/525 and rest is adjusted against
insurance proceeds.

Irregular cash receipts for money collected and lack of control over cash receipts

The Bookkeeper did not retain evidence that receipts were issued for all monies collected.
Receipts were sometimes duplicated, as he used two receipt books – one to be audited and
one for people who gave her cash and checks. HOD does not specifically track the issuance,
use, completion, and inventory of pre‐numbered receipt books and reconcile those to the Fund
reconciliations. Additionally, the receipts were not kept in‐tact as required.

On examination of books of accounts and other records, we found record’s to be incomplete

and inaccurate. We relied substantially on records from the bank to complete our engagement.

 The same person that received the invoices for goods or services delivered and
followed up on vendor calls, created POs, wrote the checks, obtained the principal’s
signature, sent checks, and reconciled the bank account. There is a lack of controls in
place to ensure separation of duties at the Company’s. This lack of checks and
balances allowed the accountant to maintain a “second set of books” and seemingly
mislead her co‐workers, superiors, vendors, and even parents.
  Using Find duplicate, the auditor came to know that there were 2 parties having same
mobile number.

1. Namita Jain Amount involved Rs. 75000.

2. Kamal Prasad Amount Involved Rs. 125000

 On examination of records, we found that we supplied goods without ensuring that

100% payment had been received or not. When we tried to reach out said parties, we
found that telephone number so mentioned in the bill, was of Accountant wife.
 No records being maintained by the accountant for receipt of Company’s
consumables, for issuance of goods, closing consumables in hand.

E. CONCLUSION
The Fraud Triangle, showing that there must be three factors that must be present at the same
time in order for an ordinary person to commit fraud i.e. Pressure, Opportunity, and
Rationalization.

We would like to discuss below possible factors contributing to the Fraud Triangle from the
information available to us.

Pressure – On verification of Accountant office, we noted that there were many credit card and
loan statement and past due notices of recovery, tempered or altered documents, paper with
principal signatures. It appears these were used to try to “prove” that certain bills had been paid.
There were also lottery tickets within his office contents. All these factors contributes that the
accountant had financial pressure. An inability to pay ones’ bills can become a motivation to
solve this problem through illegitimate ways.

Opportunity – The Accountant had the opportunity to skim activity funds from the Company’s
Lack of controls, absence of maker and checker check, improper delegation of authorities can
lead to the method by which one can abuse their position of trust to solve his or his financial
problem with a low perceived risk of getting caught.

After the breakout of news of financial fraud and accountant, being one of the suspected party,
the accountant stopped coming to office saying that I will not come to office as you people have
set up ready to trap me. If you people force me intensively, ill suicide and will name the
company’s people.
Normally, offenders do not see themselves as criminals, they view themselves as ordinary,
honest people who are caught in a bad set of circumstances. Consequently, He will justify
their actions to themselves in a way that makes it an acceptable or justifiable act.

F. AUDIT RECOMMENDATIONS

 Perform surprise audits.

 The Director Finance should maintain strong controls over receipts for money collected
and track the prenumbered receipt books. These should also be reconciled to the monthly
reports Accountant submit to HOD Finance and to the HOD Sales approves.
 Receipt books must be pre‐numbered and in triplicate. White – to person turning in
money 1st Copy – attach to backup documentation 2nd Copy – stays in receipt book
  Attach bank receipts to the deposit slip for reference. (Amount on bank receipt and
deposit slip must match)
 Separate cash receipts and reconciliation responsibilities.
 Contacting the customer if they were receiving the statement post their transaction and
were they also reconciling the payment transaction.
 We shall also request to have inhouse or third-party telephonic verification to ensure
reconciliation of our book ledger with what customer had been served.
 Keep close track of the use of credit memos (The person committing fraud may try to end
a lapping situation by writing off a receivable in the amount of the missing funds.)
 HR must be instructed to have employee background screening before issuing the Offer
letter or we may hire a service of third-party consultants for said task.

G. DISCLAIMER

We were not engaged to, and did not conduct an audit examination, the objective of which would be
the expression of an opinion on the accounting records of the Company. Accordingly, we provide no
opinion, attestation or other form of assurance with respect to our work or the information upon which
our work is based. The procedures performed do not constitute an examination in accordance with
generally accepted accounting principles and auditing standards. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to you.

This report is intended solely for the information of the parties specified above and their designated
legal counsel, and law enforcement agencies. This report should not be relied upon by any other party.
ZZZZ & Associates accepts no responsibility to any other party to whom this report may be shown or
who may otherwise gain access to this report.

Please do not hesitate to call if you have any questions or need further assistance regarding this
important matter.

We would like to sincerely thank the Mr. XYZ, Director -ABC, and Company staff for their support in
assisting us with our procedures.

For ZZZZ & Associates Chartered Accountants

CA. PQR
Partner
Membership No xxxxxx
Gurgaon,
07.02.2023