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Moral dilemma?

Should I qualify report?

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In auditing the accounts of a sports club I discovered that a payment had been made to a member for work he did at the club's premises. Although there was an invoice for the work, Committee Minutes did not specifically approve the original quotation or the subsequent payment. The member has previous form for charging for work done without informing the Committee and had agreed not to do so in future.

Should I mention this in the audit report or am I nitpicking? (If the former, please suggest non offensive wording!)

Replies (14)

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By memyself-eye
22nd Oct 2019 15:28

Payment -How much?

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Hallerud at Easter
By DJKL
22nd Oct 2019 15:37

Well, who paid him? If the treasurer made the payment does that not validate the payment, unless the treasurer is in cahoots .

Would a letter of rep from committee help ? (Long time since I audited anything)

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By Mike Bath
22nd Oct 2019 15:42

It sounds like you're not doing a 'normal' statutory audit here. Is it within the scope of your engagement terms to report on whether specific approval procedures have been followed?

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Replying to Mike Bath:
Hallerud at Easter
By DJKL
22nd Oct 2019 16:02

The OP will just have to increase his sample size due to the control breach, if he gets another one then likely reliance on the control goes out the window so will need to redesign the audit. (the audit clerk's worst nightmare)

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By paul.benny
22nd Oct 2019 15:59

I would certainly report informally to the committee - perhaps to the chair and/or treasurer first.

If this were a regular company audit, you wouldn't qualify unless the expenditure was not properly recorded in the accounts. It's the same here.Unless your appointment requires you to report on expenditure controls, there's no reason to qualify.

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By Martin B
22nd Oct 2019 16:05

If you were auditing for me , I would expect you to bring to my attention issues like these. Clearly the 'payment authorisation' procedures are not working as they should.
Whoever made the payment is the problem. He/she may well be making other unauthorised payments.
How much is involved £10 or £10,000?

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By Montrose
22nd Oct 2019 17:31

What is the constitutional position of the Spots Club? If written , does it address self dealing?
Would a subsequent ratification by the Committee[or whatever the body might be] solve the issue?
Are the accounts published, and do you have a certificate attached, or how else do you deliver your conclusion?

If the constitution requires self dealing to be dealt with in a particular way which has not been followed, then your report should disclose that if material.

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RLI
By lionofludesch
22nd Oct 2019 18:19

Ask the Committee if they approved it.

Or intend to approve it retrospectively.

I wouldn't be putting this in a formal audit report until I'd made more enquiries.

As DJKL says - somebody must've paid him. Someone with access to the bank funds.

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By Roland195
22nd Oct 2019 19:46

There is so much I don't understand here. Are you actually undertaking a statutory audit and if so, what is the moral dilemma? While you have identified a weakness in controls, the work was carried out and paid for therefore the accounts are accurate in that respect. I agree with the other that it may help if you explain who authorised payment - if he wrote himself a cheque I can see more of an issue. On another note, I'm so glad not to be involved with tedious, thankless drivel like this anymore, good luck to you.

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By 356B
23rd Oct 2019 10:18

Thanks for the responses so far.........
It's a mutual club, so no statutory audit. The cheque was signed by the Commodore and the Treasurer, who are not related to the member. No fraud is suspected, merely a failure to comply with established procedures. The member concerned is an officer of the club, so the Committee are aware of his position and he attends committee meetings. The Terms of Appointment in the club rules do not limit the auditor's remit. The amount is material as far as the club's accounts are concerned (£1400). The audited accounts are provided to all members prior to the AGM.(but of course nobody reads them or understands them, let alone reads the audit report.)

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Replying to 356B:
RLI
By lionofludesch
23rd Oct 2019 11:52

356B wrote:

Thanks for the responses so far.........
It's a mutual club, so no statutory audit. The cheque was signed by the Commodore and the Treasurer, who are not related to the member. No fraud is suspected, merely a failure to comply with established procedures.

Not a matter for the audit report for me.

Might well be in the management letter, though.

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By bernard michael
23rd Oct 2019 10:29

It appears he has done the work satisfactorily and been paid via a cheque signed by two committee members.

A quiet word in their ears is all that's called for - in my unaudited opinion

However points for consideration

Was it an emergency job needed doing quickly with no time to get formal approval except the tacit approval of the Commodore and Treasurer ?
How available are the other committee members to have a meeting to approve the work ?
Was this raised at a subsequent meeting and approved ?
You could could put the item as a separate heading in the accounts

I'm always glad I gave up auditing

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By dmmarler
25th Oct 2019 11:40

Definitely a point for a formal audit management letter. The club is in breach of its own procedures. The amount is material as - if it were repeated - there are PAYE implications (IR35 could rear its ugly head).

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By [email protected]
25th Oct 2019 15:34

May be it was agreed informally by the committee in a corner of the bar, and not minuted. If £1400 was the cost and you say it is material, the committee must have been aware the work was being carried out, unless they walk round with their eyes shut.

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