[Anonymous]

Curious, as current and future accounting professionals, what would you do if you were on an audit (or if you worked for a private company) and saw the client/owner paying someone cash for business expenses that are not ever recorded on the books.

Would you report it to the IRS? To HR? To anyone?

From my experience in the real world, especially at smaller CPA firms, there are plenty of transactions and things that go under the radar that you are apparently supposed to keep to yourself.

[Stilgoin]

https://www.aicpa.org/research/standards/auditattest/downloadabledocuments/au-c-00240.pdf

I should add that I have NEVER seen anything in our CPA materials about reporting details of an audit to HR. There are very specific instructions about material fraud and immaterial fraud. I can see getting fired if you do not understand the difference. Audits are a huge responsibility.

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Anonymous]

Thanks @stilgoin

Very true in regards to an audit, I can see that as far as assurance on the financials are concerned, it is immaterial and would not necessarily require a modified opinion or any disclosures.

However, what about if you were the accountant working for a private company who is responsible for booking petty cash transactions? What about if you had more of an oversight role and were responsible for reconciling the cash account and are hesitant to reconcile a $25,000 credit from petty cash all booked to “miscellaneous expenses” with no vendor or additional information?

Would you just keep it to yourself?

[Stilgoin]

No. You would need to discuss it with your manager, maybe up to the CEO, then with legal council and/or your governing body if you do not find a resolution in house. The World-Com scandal comes to mind. Also, I wrote a paper on the Pilot Flying J rebate scandal. In both of those examples, people lost their jobs and/or money, and/or received jail time for doing what their bosses told them to do. With Pilot, the lady knew she was doing wrong and kept a separate set of books because she knew they would eventually get caught, but she stayed because she did not want to lose her job-she needed the money. I think she turned state's evidence and cut a deal, but I don’t think she was a CPA. If she had been, she would have lost her license. Ignorance of the law is never an excuse.

As a professional CPA, you need to stop thinking in terms of the usual hierarchy, such as reporting problems to HR. You are the top of the food chain and are solely responsible for your integrity, and sometimes that means leaving a job. CPAs are held to a higher standard, and you need to protect yourself. If you have accepted the responsibility for signing off on something, then you can be liable for damages. You need to reference your professional guidelines and take the appropriate actions in your specific situation. At the same time, you cannot overreact to situations without doing the proper amount of research. You are responsible for your own due diligence.

I hope this helps. 😉

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Anonymous]

Very helpful, thanks!

That is basically what happened to him. He reported it to his boss, the client's HR company, and also discussed the matter with external employmeent law attorneys for wrongful termination.

Nothing helped and he got screwed over basically.

He is still considering reporting to the State Board of Accountancy, AICPA, NELA, and IRS but highly doubts anything will come of it.

[ruggercpa2b]

I think it gets tricky when you are an external auditor in terms on who you report these things to. If I was still in public accounting I would report the matter to the engagement manager and the partner over the engagement. If they decide to sweep it under a rug then I would have to rethink my working for that firm. At the end of the day reporting to your client's HR is really not going to do much because we work for the client. And you know in public accounting they care more about retaining clients at times vs a matter at hand. Another thing is that sometimes as newer auditors we are quick to point out things as fraud when materially they do not matter. Is a total of $500 paid in cash really going to raise red flags and have outside people want to investigate, probably not. I had one client that paid their window cleaner in cash and he got paid $40 every two weeks. That was not right but I sure as heck was not going to try to cause a huge deal out of that. I just brought it up and explained that it should be run properly and documented as an expense. I did document it in one of my work papers just to cover my ass, but it was not something I was going to have all levels of management involved over. Sometimes you have to exercise some form of judgment. Now I had one audit job that I left after a year because I was not comfortable with how things were done and I was not about to have my name associated with any of the work done by that group.

AUD - 73, 72 retake 7/2/2016
BEC - 8/20/2016
REG - TBD
FAR - TBD

I am so ready for this nightmare to be over. Been at this way too long.

[Author]

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