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Investigation into management accounts errors

Appointment Type: Other

Service Area: Fraud, Professional Negligence

Industry: Transport and Automotive

Litigation Type: Other

During an investment appraisal exercise the senior management team of a national logistics company became aware that the management accounts of a subsidiary were incorrect, but were unsure if this was due to fraud or error.

A forensic investigation revealed that the accountant responsible for preparing the accounts was not suitably qualified or experienced to fulfil the role, and that the HR and due diligence processes in place were inadequate both when he was appointed and at the date of the investigation. In particular, we identified that currently there was no evidence of checks for references, qualifications, or ‘Right to Work’ had been performed.

A review of the accounts revealed numerous issues – accounting reconciliations were not being performed, standard journals such as accruals and prepayments were incorrectly calculated and posted, VAT returns were not submitted, and there was no formal review process of the accounts.

In addition to weaknesses in systems and controls and the accounting errors, the investigation also highlighted operational and Health and Safety issues.