Apparent cash shortages;

              Bulletin HASKINS & SELLS 93
Apparent Cash Shortages
THE danger of jumping at conclusions
is one to be guarded against in cases
where accountants suspect a cash irregu­larity.
The accountant must be certain
that there is a shortage and who is charge­able
before going to the client with open
accusations of a particular employe, who
may be a trusted person. The client prob­ably
will regard with extreme disfavor any
accusation not supported by absolute proof.
Of course, it is permissible to inform the
client that one's suspicions have been
aroused, but even this must not be done too
quickly and must be done tactfully. The
following case of an apparent cash shortage
is illustrative.
During the audit of a certain construc­tion
company irregularities were brought
to light which, at first, led the auditors to
believe that a misappropriation of company
funds had been effected, but later proved
to be merely bona fide disbursements of
the company's funds for purposes which
they wished to conceal.
The amount of these apparent irregu­larities
was $1,337.50. Deposits of
$1,337.50 appeared on the bank statement,
but were not entered on the company's
books. The deposits appearing on the
bank statement were offset by debits
appearing on that statement aggregating
the same amount, for which no canceled
checks were available and for which no
entries appeared on the books. These
amounts, representing collections from a
customer, were deposited properly and off­set
by checks drawn in the usual manner
payable to officials of the customer for
whom work was being done. These
amounts were paid to the customer's
engineer in consideration of his furnishing
inflated estimates of work performed.
The disbursements were for the company's
account and did not represent improper
withdrawals in so far as employes were
concerned. The collection and disburse­ment
mentioned above were not recorded
as it was not desired to have disburse­ments
of this nature shown on the com­pany's
books. This appeared to have
represented the plan of concealment of
the company's accountant.
In order to give proper credit to the cus­tomer
from whom the amounts were col­lected,
charges were made to the com­pany's
contract cost or to expense accounts
in amounts aggregating $1,137.50 and
credited to the customer. Entry for the
other $200 was not made, apparently
through oversight.
These items were detected by comparing
the deposits shown on the bank statement
with the cash book, as well as comparing
the canceled checks with the charges on the