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: How will forensic auditor find out existence of collusive bidding, if any ?

Answer & Explanation:

In order to find out collusive bidding, one need to undertake the following activities: Identify and interview all complainants and confidential sources to obtain further detail. Do due diligence background checks on the winning and losing bidders to identify, for example, undisclosed common ownership, employees or other affiliations, or prior involvement in other collusive bidding schemes. Obtain the bidding documents, including, if possible, bidding documents from similar prior projects (to identify bid rotation) Do a forensic analysis of the bids, looking for unusual bid patterns. Review bid securities submitted by the winning and losing bidders. Note such securities issued by the same bank on the same day to different bidders. Critical examine those securities that appear to be forged (this information can be used to induce the responsible party to cooperate in the investigation). Exercise audit rights on the winning bidder; look for evidence of collusion, for example emails between bidders setting bid prices, etc. Interview the winning bidder based on the evidence obtained in the investigation. Analyze the purchase contracts entered into in the last 5 years to comprehend since when contracts started getting awarded to related concerns. A disk imaging of the procurement/ committee head and his team members should be performed. The emails and other communications need to be reviewed to identify any red flags. Identify vendors who have been blacklisted or discontinued in the last 5 years and contact them to understand the reason for blacklisting or discontinuation. Are there any conflict-of-interest angle needs to be checked, i.e. any relationship exists between purchase committee members and the UBOs of the companies to whom contracts were awarded?

Topics: Forensic Audit

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic