How to Handle Suspicious Payments in a FTSE 100 Audit

To be successful in Assurance, you need to be curious. It’s important to understand exactly what your client does and how they have accounted for business activities, as this may affect the work performed and the conclusions reached.

Please imagine you’re working on the audit of a FTSE 100 client. You’re responsible for checking that payments to the company’s suppliers have been correctly accounted for. You’re having problems verifying that three of their suppliers exist. You’ve asked your main contact at the client to provide you with more information, but they haven’t heard of these suppliers. They’re very busy and advise you that, because the amounts are relatively small, they’re not worth looking into any further. However, you think the payments look suspicious and need to be investigated. You decide to raise the issue with your manager.

Further information to help you prepare

An important ABC value is to always act with integrity and do the right thing. There’s a risk management procedure for what to do if you suspect any inappropriate client activity. This emphasizes the importance of escalating concerns around unacceptable ethics and behaviours to a senior manager or above.

Last month’s ABC “Audit Update” email which is sent to the Assurance practice included an article about supplier fraud.

A ABC audit team had uncovered a significant fraud, where one of the senior executives had defrauded an engineering company of £1.5million over the course of 10 years. They found that the individual had set up payments to herself, disguising them as legitimate payments to a supplier.

Last year’s audit file include working papers that appear to indicate that tests were carried out on transactions with the suppliers in question and nothing unusual was identified, although it’s not clear exactly which tests were carried out.

The client’s processes state that payments to suppliers of up to £5,000 can be authorized by two signatories, who must be manager level or above. Payments over £5,000 need to be authorized by senior managers or above.

The payments that you’re querying are listed below:

Your 5-minute presentation should include:

• What you’ve discovered
• The information you need to find out next
• Recommendations to your manager on how to approach the situation.