Where is Fraud Likely? - Part 14

Investment Income Disappears if No One Accounts for It

Most entities do an excellent job of accounting for their investments.  If an investment disappeared from an investment advisor’s monthly statement, the entity would quickly discover the error.  If the entity did not get credit for the scheduled interest or dividend payment on the investment would that payment be missed?  Probably not.

A CPA firm was auditing a pension fund.  The pension fund had numerous investments, including a $5 million dollar corporate bond.  It was at a time when interest rates were high and the coupon rate on the bond was 9%.  The pension fund should have been receiving $225,000 semi-annually in interest on that bond.  The CPA discovered that one of the $225,000 had not been received in the past year.  Further investigation revealed that a brokerage firm was “holding” the payment.  Why?  The answer to that question was never resolved.  Without the CPA’s discovery, would the payment have been received?  Probably not.

Someone within the entity should ensure that all investment income has been properly received and accounted for.

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