The Bookkeeping Detective (part 1)

It was a grey Friday morning when I went to meet a new client to review their bookkeeping systems. I knew I was in for an interesting case, as when I first spoke to the administrator Ms Lia Bility, who was now acting up as the bookkeeper she said to me confidently “ I know the bookkeeping is ok because the trial balance balances and I think the company is doing well, because the bank balance is £60,000” At this point I could here the words of my accounting tutor “ A healthy bank balance does not equal profit”

At this point I thought it best to get down to the evidence. Ms Lia Bility then opened the Sage software and showed me confidently what she had been doing, whilst I made some notes. I kept my emotions intact as I noticed some transactions in RED on the audit trail – clearly she had made mistakes and had deleted some of the transactions. At this point I asked her for a big mug of Strong coffee, which I gulped down. I then told her to get on with some other tasks so that I can carry out my investigations.

Well ladies and gentlemen of the accounting profession this is what I discovered:

Opening Balances

The opening balances did not match the figures in the year end accounts and there were some discrepancies.

Sales Ledger balances

The debtors figures looked very high and most debtors payments were overdue by at least 120 days!

Purchase Ledger Balances

Again the creditors balances were very high, and I remember Ms Lia Bility had told me that they usually pay their suppliers within 14 days!

Bank Reconcilliation

At first I thought "YES "at least the bank had been reconciled and up to date. Oh how wrong I was, I realised that when the bank could not reconcile adjustments had been made against the suspence account!

Petty Cash

The petty cash had a credit balance of £273 – this looked strange as they operated an imprest system of £100.

Salaries

I noticed that the Net Salaries had been posted to the profit and loss, meanwhile the Inland Revenue payments had been posted in the balance sheet under PAYE liabilities.

Trial Balance

I printed the trial balance and realised that some accounts which should have debit balances had credit balances and vice versa!

Management Accounts

At this point I had to go out for some fresh air and realign my thoughts! Well I realised that decisions had been made on the reports which Ms Lia Bility had given the directors. These accounts were sadly incorrect as there were a lot of adjustments, and the opening balances were incorrect.

I had now spent three hours looking at the evidences, right now I felt it was time for me to go home, review the evidence and then write up solution. I mentioned some of my findings to Ms Lia Bility and arranged my appointment for the following Monday!

This case continues next week friday – so don’t forget to log on