Case Studies

• Fraud detection and Investigation
• Expert Witness
• Family run (into the ground!!) business
• Redundant IT Person
• Bouncing Baby Limited
• Out of Control Limited

  Fraud detection and Investigation

  

  A company was referred to Guardian during 2009 by one of our clients. The company had concerns over the margins of a particular retail outlet compared to another in the chain of almost identical size and very similar product mix, as both were holders of a franchise. As a result Guardian was asked to go in to the company in the guise of external auditors representing a potential investor.
  

  We undertook a complete review of the performance, staffing and stocking of the outlet, based on the paper records that were available. Everything seemed to add up, Z readings from the tills matched the cash summary sheets, which in turn matched back to the lodgements to the bank. Staff hours were similar, rates of pay identical, utility costs similar. The opening hours were identical as both operated within suburban shopping centres with defined opening hours imposed under the terms of the lease.
  

  In our frustration, we decided to go back to basics. Count the opening stock and value at cost price, add on purchases/deliveries and take away the closing stock figure having counted it and valued it using the same cost prices as used in the opening stock. What came to light was that more stock was being used than was recorded in the till sales. How could this be when the till reading added up to the cash sheet and the bank lodgement? We decided to engage the services of firm of test/mystery purchasers. They visited the outlet and purchased items every 30 minutes over a 5 day period and retained the receipt issued. As often as possible, they purchased an item with a unique selling price.
  

  We met with the firm on the Monday morning after a week's mystery purchases had been made. What transpired was that while the shop opening hours were 9.30 am to 5.30pm Monday to Saturday and 2pm to 6pm on Sundays, the shop manager opened the doors and opened the drawer of the till at 9.00 am every day he was on, but only turned the till on at 9.30, and similarly turned it off at 5.30, while continuing to make sales until 6.00pm.Thus the Z readings always matched the lodgement. The basic oversight by the company staff was not checking the time on the Z readings. Any sales made during each half hour period, were not issued with a receipt, and the sale price was rounded up or down if the correct change was not available. When challenged for a receipt on one occasion, the manager said the till was broken, but hand wrote a receipt on a compliment slip, but did not sign the receipt.
  

  The company approached the manager and commenced a disciplinary process. The process ended in the resignation of the manager but no further action was taken due to insufficient evidence.
  

  As a result of the Fraud Investigation, Guardian were retained to review the entire internal sales and accounting systems and implement changes as required.

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  Expert Witness

  A solicitor representing an insurance company asked Guardian to examine the file in relation to a personal injuries claim as a result of a car accident. The plaintiff was seeking damages of €3,500,000 in relation to injuries received and loss of earnings. The loss of earnings calculations had been prepared by one of "The Big 5" audit firms.

  

  We thoroughly reviewed the file and found it seriously deficient in terms of relevant supporting documentation to substantiate the loss of earnings figure.

  We prepared a 3 page request for information to the plaintiff's solicitor. The first reply contained answers to approximately 50% of our questions. We wrote a second time and reiterated our request for information.

  We received answers to a further 20% of our original questions. We wrote a third time and this time asked further questions in relation to a number of their answers as we found them to be vague or in some cases not answering the questions asked.
  

  After 2 weeks, our client informed us the case had been settled at €800,000 – the plaintiffs could not or would not answer the questions we asked.

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  Family run (into the ground!) business

  The founder, and director of a long established service company contacted Guardian as he could not understand how his annual accounts showed a profit each year (albeit decreasing) while his cash-flow was becoming acute.

  

  As is the case in 90% of such situations, no Management Accounts were being produced, and the year end accounts were always rushed and thrown together. The information to produce the accounts was forwarded to the auditors by the daughter of the founder. The founder's son was the general manager. The founder, now 70 years of age had stepped back from the day to day operations of the business about 3 years previously.
  
  

  On commencing work in the premises we found that much source documentation was missing or not available. In particular many bank statements and completed cheque books. No bank reconciliation was available. The stated policy was for 2 signatories on every cheque but the practice had emerged of the father pre-signing a number of cheques to "keep things going till Friday" when he would be in.

  To prepare accounts, as cheque stubbs were missing, we prepared letters to the bank requesting copies of the cheques. After a litany of excuses from the daughter, we eventually arranged a meeting with the father and the son and got them to co-sign the request. The copy cheques did not arrive. We contacted the bank and they said they had left them at the customer services for collection and the daughter had collected them. On questioning the daughter, she said she had and given them to her brother to give to us. He said he left them on the desk we used, but they were not there now. We started the process all over again and this time with the father's permission asked that the cheques be posted to our office directly. When we received these copy cheques, many of the cheques were made out to cash or to the daughter and son. We confronted them with this fact and they said they were a combination of expenses and loans - the son was a director in the company so loans were prohibited under company law. No expense claims had been submitted to support the payments.
  

  The next item that came to light was in the area of trade creditors. We set about getting statements from all of the large suppliers and reconciling the balances to the accounts system. There was one major supplier whose statement showed they were owed c €150,000 while our accounts record showed a debt of only c €60,000. We painstakingly went back over the activity in the accounts system versus the supplier's statement. We identified in excess of €90,000 of cheques that were paid to the supplier but had not appeared on the supplier's statement. Once again we started the slow process of requesting copy cheques from the bank. When the copy cheques came, again the cheques were made out to either cash or the son or daughter – the cheque stubb had the suppliers name written on it. From the back of the cheque we could identify to what account the money had been lodged. The account numbers matched those of the son and daughter that we could see from the payroll system eft data.
  

  On presenting these facts to the father he broke down. He approached the son and daughter and they explained how they needed money for their cars, holidays, social life, kids school etc etc. They promised not to do these things again. They did, we resigned, as no action was taken by the father and the company went into liquidation 6 months later.

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  Redundant IT Person

  Joe was made redundant in mid 2010 and received in excess of €80,000 net as his redundancy package. He is a systems support engineer with 15 years experience. To the time of leaving his employment, Joe had earned €52,000. Therefore he had already exceeded the threshold to pay tax at 20% in 2010.

  

  Joe could not secure a full-time position but was offered many contract positions. Joe came to Guardian and having discussed his financial situation with him, recommended that he form a limited company, and to accept the contract position and invoice for his services through this Limited Company. By doing this we assisted Joe to defer PAYE liability on his earnings for the remainder of 2010 at essentially at total tax rate of 52%, while only paying corporation tax at 12 ½%. During 2011 Joe then voted himself a salary which kept him within the 20% tax bracket, while making large contributions into a company pension fund that he had established. By planning in this way, Joe has minimised his tax liability while still ensuring he has sufficient net income to support his lifestyle.

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  Bouncing Baby Limited

  

  We were asked to provide maternity cover for a client as the acting Financial Controller.

  After 10 weeks the client advised that lady was taking a further 6 weeks leave which we able to provide ensuring that no loss of continuity was experienced.

  The original client is part of a large group and on 2 subsequent occasions in other companies we have taken temporary assignments as Financial Controller while they went through the process of identify and recruiting suitable replacements when people left at short notice.

  We also have taken on the outsourced management accounting function for a company within the group.

   

  Out of Control Limited

  The Financial Controller of a not-for-profit organisation decided not to renew their contract after 2 years and the management asked us to prepare a report for the Board on this person, their role within the organisation and whether they had engaged in any unapproved financial activity. The person concerned refused to make themselves available for interview.

  

  As part of this Forensic Accounting assignment we interviewed senior management, members of staff, the direct reporting team, the auditors, the fund providers and staff of the outsourced Payroll Bureau.
  

  We carried out “walk through” tests on procedures as identified at the interviews as no procedures manual was available.
  

   

  We examined all material purchase invoices and focused on any approved by the FC.

  We reviewed all expense claims and credit card expenditure

  We reviewed all material bank payments and cheques.

  We compiled an Expert Witness Report for the Board stating that despite the scope limitations, we were unable to find any evidence of financial irregularities or fraud.

  The Board subsequently requested us to produce a more detailed report on the following:

  • Role of the Financial Controller with in the organisation
  • Internal Control weaknesses & recommendations
  • Whether to outsource the finance function and/or retain the outsourced payroll function
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