 BASIC DETAILS :-

Particulars Details

Name CA. Vinod B Lobhe

Membership No. 605302

City and State Latur, Maharashtra

E-Mail id cavinodlobhe@gmail.com

Mobile No. 8999527036

Batch FAFD Physical 246th Batch, Latur

Title of work Sample Forensic Report -01

Nature of Assignment Fraud committed Warehouse of Cosmetic product.

 PQR & ASSOCIATES
CHARTERED ACCOUNTANTS
6/2, VARDHAMAN NAGAR,50,NARAYAN NAGAR, LATUR – 413512
Email: vinodlobhe@gmail.com Contact No.: 020-2222222, 8999527036

25/03/2019

PRIVATE & CONFIDENTAL

TO,
THE MANAGER,
PUNE CO-OP BANK LTD,
JB NAGAR,
PUNE-411000

Re: Forensic Investigation of ABC Ltd

Dear Sir,

Attached is our report of the results of our forensic investigation of the Abc Ltd. We have conducted
our investigation pursuant to our engagement letter dated 10/11/2017 between the Pune Co-op Bank
Ltd and our firm.

Our procedures were performed with the due diligence. Our conclusions and findings are in
confirmatory of our engagement letter. Our analyses and observations are based upon information
provided to us as of the date of this report. It is possible that additional information may become
available following the date of our report and, if so, our analysis and observations could be affected
by such information.

We are happy to discuss any questions at your convenience.

For PQR & Associates

Chartered Accountants

CA PQR
Membership No. 241215
 Forensic Audit Report of Abc Ltd
Date of report: 25th March, 2019

1. Background

1.1 Abc Ltd, a very renowned company in Pune, established in the year 2015. The main object of
Abc Ltd is, manufacturing of cosmetic products.

1.2The warehouse stores the goods and charges rent and issues warehouse receipt to the tenant who
has stored the goods.

1.3 When the goods are brought in for storage a particular warehouse receipt is issued to the tenant
storing the goods mentioning the details of the item stored, the quantity with their lot no. by the owner
of the Abc Warehouse Mr. Dilip. And when the goods are to be issued from the warehouse the
Warehouse Receipt is taken back in original and an acknowledgement is taken from the owner of the
goods that the goods has been disbursed from the warehouse and the warehouse is no more liable for
the goods stored.

1.4 With warehouse receipts some farmer use to take loan from the approved bank. The bank takes the
receipt & provides financing to the farmer or trader upto 70% of its current market value. The receipt
acts as collateral for the bank giving it the right to take ownership of the stored produce if the loan is
not repaid.

1.5 There was warehouse receipt loan provided by the bank from last five years. But huge warehouse
receipt loan was flowing in the month of May’2016 with the Solapur co-op Bank Ltd.. There were
two warehouse receipt loan in the same bank with same lot no. of the agriculture produce with
different name but the warehouse receipt was from the same warehouse i.e. Abc Warehouse .This
thing came to the notice of Mr. Abhishek an internal Auditor of the bank.
1.6 Mr. Abhishek then informed the manager & the board of directors of the bank about this matter
and the board members decided to appoint a forensic auditor to further investigate.

2. Objective

2.1 The objective of the forensic audit were:

(i) To audit and investigate the discrepancy in the names of Borrower with the Sales receipt

(ii) To check whether the borrower were genuine.

(iii)To Check whether there was actual manufacture of goods and whether the stock of goods in the
godown is matching after considering opening stock and sales .

(iv) To suggest implementation of internal control wherever required

3. Use of Report:

3.1 The forensic auditor is required to submit two original copies to the Board of Directors of the
Bank for internal purpose only which cannot be used in any legal proceedings

4. Scope of forensic audit:

(i) The forensic auditor shall find difference appearing in the name of Borrower with the Sales receipt

(ii) The forensic auditor shall also find reasons for difference and confirm the whether the borrowers
were genuine

(iii)The forensic auditor shall find weaknesses in the internal control system related to borrower and
suggest improvements

(iv) Period covered in forensic audit will be last 1 year

5. Methodology:

5.1 Probability of phantom borrower is an issue for concern for the Bank. The purpose of this report is
to validate the exact borrower

5.2 To investigate the causes and reasons, the following methodology was adopted:
(i) The audit team took digital image of the server hard disk in presence of Mr. Abhishek and two
court supervisors, Mr. Samant and Mr. Kamath. It was kept securely in sealed bag and signatures
were taken of the three witnesses. The same were preserved with the audit team office in a safe
locker.

(ii) The audit team also made clone of the hard disk so that it can be checked and verified later on.

(iii) A list of all present debtors was generated from the cloned hard disk

(iv) The audit team went to the Abc Ltd account office on 14/11/2017 and carried out the Vouching of
Sales Invoice by using Pivot table. While doing so they found that the sales showed in the Financial
Statements were manipulated. And there is discrepancies in the sales made to certain parties as
compared with other parties. It is also found that the sales made these parties are not at arms length
price.

(v) The audit team prepared an exhaustive list of Debtors and checked the Sales made to them in the
sales Invoice.

The Modus operandi of the Abc Ltd was that when the bank people were coming to check physically
the sales invoice with that of turnover reported to bank.

(vi) Using ‘Pivot Table’ function of MS Excel, the excess debtors during the year as compared with
last year found out that one of the debtor is having high value transaction in a specific month:

Invoice Nos. Name of the Debtor

56, 76, 89, 102, 117, 123, 147, 168, 169, 173, 184, 192,204, Sachin More
218, 227, 233, 247, 256.
(vii) Then from the physical file of the Sales invoice it was noticed that the sales of the particular
month was noticeably high than that of the other months

Interview:

The forensic audit team interviewed the Bank staff. The managers Mr. Ratan, collateral managers
colluded with the warehouse and issue the receipt Mr. Ramesh.

These manager Ramesh have expertise in bulk commodities. He certify the goods, monitor the
movement of goods, mark interest in the books of company — the lien of the bank, among others.

In a number of instances, “we’ve been told by the banks that certain people would only get access to
finance with this type of structure in place and with the collateral management company giving
greater weight and authority to Sales receipts.”
In one cases, the bank found that the debtor mentioned in the sales invoice was not matching with
what was in the last year debtors but relied on the collateral manager Mr. Ramesh as he has certified
the document.

Collateral managers provide comfort

Interviewed with Mr. Ramesh he told that

“The biggest challenge for the financing bank is validating those warehouse receipts,” “It’s one thing
to get a piece of paper saying that X amount of product is at this location. But for that to have any
weight, and for anyone to lend with confidence against it, they need some assurances that the
warehouse receipt hasn’t been written.

“There’s a variety of ways to do that. You make sure that you deal with a large, reputable company
that has a good background and history in that,” he says. In a collateral management capacity, who
will go into that warehouse, verify that the product is there in the correct quantity, being stored
appropriately, and that therefore they will issue the warehouse receipts on behalf of the trader for the
banks to finance against.”

The warehouseman assesses the quality of goods tendered and checks its specifications on the
warehouse receipt. But in this case, nothing was done. A group of traders and bank officials colluded
to dupe the banks.

Mr. Ramesh was getting a commission from abc Warehouse and also from the borrower for whom he
use to certify the false document. This process was going on from few months, but the borrowed loan
was repaid in full within the specified time. So there were no defaulters. So the situation didn’t
come into the lime light.

KEY FINDINGS:

The audit team made the following findings:

1. It is noticed that the sale in the particular month was noticeably high and not with arms length price to the
 Specific person
2. The Debtor mentioned in particular sale invoice was not having any tax registration number.
3. The address mentioned in the sales invoice when cross checked out it was noticed that the address was of
Residential purpose.
4. And the person living on that person was not the debtor mentioned in sales invoice.

CONCLUSION & RECOMMENDATIONS

Further independent investigation is called for on the conduct of Owner of Abc Ltd.
Mr. Dilip, Collateral Manager Mr. Ramesh & Bank Manager Mr. Ratan.

1.The bank should have access to guarantees, land and also cash as collateral from these agents.
2.It has also taken over the control of the goods in the company.
3.“There are so many quality issues that you have inside warehouses – everything from the cleanliness

of the warehouse to the way they store things,”.

4. Local banks also need to up skill. As well as introducing transactional or commodity finance capabilities,

they need to implement a risk-management framework and train staff.

5.Two collateral Manager should certify the quantity,the product of the goods stored with the warehouse

department before issuing the warehouse receipt.

For PQR & Associates

Chartered Accountants

CA PQR

Membership No. 241215