Agarwal & Company is one of the major infrastructure companies, deals with building of bridges, roads etc. They obtained road construction contract from the Government for execution of a project. They called for tend

Agarwal & Company is one of the major infrastructure companies, deals with building of bridges, roads etc. They obtained road construction contract from the Government for execution of a project. They called for tender area wise and bids were received from subcontractors. It is the policy to entrust the job only to the person who has a class I status in contracting. Bids were finalised and the one who quoted lower price was awarded construction of road etc. in a particular area. In one of the contract the estimated value of contract was ₹ 20 lakh and the winner of the subcontract was LM. Past records show that LM had undertaken such type of contract earlier, say five years back, for this company and he was very familiar to Executive Engineer of the company. He used to visit the company frequently and finally succeeded in getting the contract now. LM has made the request for advance of 50% of the contract amount, but the company policy was to give advance only 20% subject to production of a bank guarantee from a nationalized bank in favour of the company. In the instant case LM persuaded the company to accept his FD receipt i.e. two receipts for each ₹ 2 lakh issued by the banker in lieu of bank guarantee. After prolonged discussion among the Executives, the company has agreed to accept FD receipt and paid advance money. LM commenced work and finished only 10% of the road construction contract. Information reached the company that LM stopped the work abruptly and no further work was carried out. The company made efforts to contact him but to no avail. Company issued notice to LM and there was no response. The legal notice was also issued and returned with the remark that "addressee not found". Recovery process: The company approached the bank for the purpose of encashing the two FD receipts of ₹ 4 lakh endorsed in favour of Company by LM. To the disappointment of the company, the bank said that they had not issued the said FD receipts to LM and that the said two receipts were fake. Denial by the bank does not seem to be correct and require further investigation. The company decided to have the matter investigated. Your help is sought to conduct a Forensic Audit. (i) What may be your assumption before proceeding to undertake this case ?