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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

During a forensic investigation of Ratnam Traders Pvt Ltd, the investigator finds that the purchase manager approved invoices of a vendor whose address matches the manager's relative, and the vendor's invoices are just below the Rs 5 lakh approval limit. Which is the best next step for the investigator?

The investigator should treat the matching address and just-below-limit invoices as red flags and extend procedures like vendor verification and related-party checks, preserving evidence. The report should state facts and findings, not declare the manager guilty, because determining guilt is a legal function.

  1. AConclude fraud has occurred and name the manager as guilty in the report
  2. BIgnore the pattern as invoice amounts below limits are common
  3. CTreat the pattern as a red flag, extend procedures such as vendor verification, related party checks, and examination of documents while maintaining evidence integrity, and report facts without legal conclusions of guiltCorrect
  4. DDestroy the invoices after copying them to save storage

Explanation

Address match and threshold splitting are classic red flags of fictitious or related vendor fraud. The investigator gathers corroborative evidence and preserves its chain of custody. Declaring guilt is a judicial function, so option A is wrong.

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