Internal Audit Control Systems, Forensic Accounting and Financial Rereporting
Posted: 20 Sep 2009
Date Written: September 16, 2009
Internal auditing systems ensure that the organization journeys in the path mapped by the management without having any operational hiccups. At times, these systems checks and plagues the means of resource leaks and may do away with fraudulent tendencies of system. If such tendencies are not curbed they bring about depletion of resources and may lead to Financial Rereporting. This implies that the organization has to take a stand to reexamine its financial reporting to the stakeholders and re-report is a defensive step to ensure a true and fair view and reporting of vital, material, relevant, financial information. This step can cost heavily to a company. It may lose its face and worth in the eyes of stakeholders, SEBI and government authorities. The organization may have to work harder to prove its mattel henceforth. They have to approach judiciously and construct an internal auditing firewall to reduce frauds or fictitious accounting entries. In this paper, the author has added the 2 live cases of Xerox ModiCorp and Devi Ahilya Vishwa Vidyalaya in India where there were needs to redo the existing control systems.
The first case is based on the details of the process adopted by Xerox ModiCorp to siphon funds by creating fictitious payments of cash and demand drafts to non existent companies who deducted an amount and paid back to the company. PricewaterhouseCoopers which audited and investigated into the Indian arm's functioning after the US parent was alerted about the possibility of XML's books of accounts not being in order. It has submitted its report also to the Department of Company Affairs. The second case is about a university named DAVV, where the auditors questioned for the irregularities in maintaining the accounts. Around Rs.2.5 crores was found to be missing from the cash books of the institute. DAVV registrar was the first to notice this discrepancy and reported the same to V-C. On proper auditing of cash books auditor was surprised to see that no cash book was maintained since last one year. And an unaccounted loss Rs 240, 73,058 was noticed.
PWC is also has noticed a consistent increase in the number of companies where the internal accounting and auditing systems have failed. This paper is about the final Rereporting needs of organizations where any malfunctioning of control system has happened leading to frauds and mismanagement.
Malafide employees have been in organizations from time immemorial but how they use the system- modus operandi is becoming complex especially in the technology driven business and the stakeholders are demanding more extensive and accurate information.
Keywords: Forensic Accounting in India, Financial Rereporting, Managerial control systems, Internal Audit
JEL Classification: G32, G34, M41, M48
Suggested Citation: Suggested Citation