Royals India Ltd. (RIL) is an Indian sports equipment manufacturer based in Delhi. RIL makes equipment for multiple sports, among them basketball, football, volleyball, handball, cricket, tennis, rackets, table tennis an

CS Professional · Internal and Forensic Audit · PYQS · June 2024
Royals India Ltd. (RIL) is an Indian sports equipment manufacturer based in Delhi. RIL makes equipment for multiple sports, among them basketball, football, volleyball, handball, cricket, tennis, rackets, table tennis and roller skating as well as fitness equipment. Company has four subsidiaries outside India and regular sale/purchase transactions takes place between RIL and its subsidiaries. One of its subsidiaries, based in Unites States of America, handles retail sales also in USA. The main raw material used for manufacturing equipment is wood which is supplied by Fair Supply Ltd. (FSL) based in Tamil Nadu. Besides this, other raw material like rubber, latex, cotton, wires for badminton racket etc. are procured from various other vendors as per requirement and using Non-PO route basis. Analysis of last three years' procurement data shows that major quantity of badminton wires has been supplied by only one company TAR Ltd. (a distributor of different types of badminton wires). Total business obtained by TAR Ltd. from RIL in last three years has increased from ₹25 crore to ₹100 crore. Board of Directors came to know of this and are suspicious as to why same company is getting repeated orders. Their suspicion got confirmed when one whistleblower raised issue that payments to TAR Ltd. is being made on priority basis and that too with little credit period as against normal credit period of 30 days availed from other suppliers. Possibility of collusive bidding also cannot be ignored in this case. As per consensus, forensic auditor was appointed to investigate in detail the purchases made from TAR Ltd. to identify any fraudulent purchases and review the procurement process in detail to identify the risk associated with procurement process. For the same period of three years, supplies of various sports equipments's manufactured to US subsidiary amounts to ₹750 crore. Analysis of consolidated financial statements for said three years show that the operating margin earned by US subsidiary on same products is more than the margin earned by RIL. Internal Auditors also included the same fact in their audit report and advised the company to check its pricing policy for the future. Management is of the view that no change in pricing is required. In the meantime, Income Tax department after analyzing the exports of same type of goods by other companies has initiated scrutiny for its financial dealings with its subsidiary. Considering the facts above, answer the following: What will be the objectives of the forensic auditor appointed in this case ?

Answer & Explanation:

Main information in the case given is suspicion got confirmed by the whistle blower which is the starting point of any forensic audit. As per Association of Certified Fraud Examiners Report to the Nation 2024, 43% of Fraud were detected by Tip. The forensic auditor will plan his investigation to achieve objectives such as: Obtain the whistleblower complaint and any supporting documentation, including emails, financial records, and other relevant evidence. Ensure the whistleblower's confidentiality and protection from retaliation, in accordance with company policies and relevant laws. Analyze the specific allegations outlined in the complaint to understand the nature and scope of the suspected misconduct. Identify what fraud, if any, is being carried out Determine the time period during which the fraud has occurred Discover how the fraud was concealed Identify the perpetrators of the fraud Quantify the loss suffered due to the fraud Gather relevant evidence that is admissible in the court Suggest measures that can prevent such frauds in the company in future. Further after understanding the possible type of fraud that has been carried out and how it has been committed, the auditor is required to support the evidence collected with adequacy, enough to prove the identity of the fraudster(s) in court, reveal the details of the fraud scheme, and document the amount of financial loss suffered and the parties affected by the fraud.

Topics: Forensic Audit

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