Interesting cash shortage;

              14 HASKINS & SELLS February
ASHORT time ago our office had an
interesting experience in discovering a
shortage while conducting a general ex­amination.
We were engaged by an
eastern client to make an examination of
the accounts of a local company in connec­tion
with a proposed purchase of this local
company.
The defalcation was perpetrated by the
office manager, who had been employed by
the company for about eight months, and,
among other duties, kept the general
ledger, the cash disbursement record, and
purchase journal, and prepared and en­tered
disbursement checks, but did not
sign them. He also obtained the bank
statements and reconciled the bank ac­count.
The general manager of the company
requested us not to divulge to the office
force the reason for our examination. He
further suggested that if we needed any
assistance in our work to come to him, be­cause
the office manager had complained
about the bother of having accountants at
work again (about five months had elapsed
since the completion of a previous audit),
and had also remarked to the manager,
"Let the auditors dig out what they want
themselves."
As soon as we started the work, the office
manager, contrary to our expectations,
proceeded to make himself very attentive.
He appeared to be greatly interested in
our procedure, asked numerous questions
regarding the methods and extent of our
verifications, and requested us to consult
him whenever necessary. Accountants al­ways
welcome coöperation, but, in this
particular case, assistance was volunteered
so often and so profusely that it became a
hindrance and nuisance rather than a help.
The first indication of an irregularity
appeared when taking the general ledger
trial balance, which was done shortly after
starting our work. In taking this trial
balance, we used the differences between
the debit and credit footings of each ac­count
instead of the pencil balances usually
found in. general ledgers. This procedure
resulted in a discrepancy between our
figures and the company's in the bank
balance. In attempting to locate this
difference, we found other errors in footing
the bank account in the general ledger.
The aggregate of these errors, it later de­veloped,
constituted the amount of the
shortage. We also found that these under­statements
of the bank accounts were off­set
by a fictitious charge to "machinery,"
and an underfooting of the credit side of
the accounts receivable control account in
the general ledger.
It is perhaps needless to say that these
irregularities directed our suspicions to­ward
the office manager, and compelled us
to refrain from partaking of his profusely
offered assistance. If any circumstance
arose about which we desired information,
we consulted the general manager of the
company, who had been advised of the
errors previously described.
An Interesting Cash Shortage
By C. H . RITCHIE, Minneapolis Office