Whilst carrying out their work auditors are
expected to be on the alert for suspicious transactions (see chapter 20). Risk
factors which can be associated with such transactions are:
expected to be on the alert for suspicious transactions (see chapter 20). Risk
factors which can be associated with such transactions are:
·
Secret’
or ‘confidential’ transactions which are dealt with outside the main
Secret’
or ‘confidential’ transactions which are dealt with outside the main
accounting
systems, possibly by one individual or a small group. Be aware, however, that
secrecy can be associated with commercial confidentiality and be perfectly
innocent.
·
Routing
transactions through tax havens or countries with lax fiscal rules.
Routing
transactions through tax havens or countries with lax fiscal rules.
·
Routing
transaction through several countries or institutions.
Routing
transaction through several countries or institutions.
·
Routing
transactions through a country different from the one from which the underlying
transaction is sourced e.g. services are purposed to be bought from country a
but payment is made to a bank in country B. note that there may be underlying
commercial reasons for this such as foreign currency hedging or even tax
evasion by the supplier, but it is suspicious and should be investigated.
Routing
transactions through a country different from the one from which the underlying
transaction is sourced e.g. services are purposed to be bought from country a
but payment is made to a bank in country B. note that there may be underlying
commercial reasons for this such as foreign currency hedging or even tax
evasion by the supplier, but it is suspicious and should be investigated.
·
Frequent
use of write transfers or money transfers which do not disclose details of the
ultimate recipients of the funds e.g. transfers to overseas lawyers or nominee
bank accounts;
Frequent
use of write transfers or money transfers which do not disclose details of the
ultimate recipients of the funds e.g. transfers to overseas lawyers or nominee
bank accounts;
·
Transactions
which involve the use of large amounts of currency or ‘bearer’ financial
instruments (financial instruments which can be cashed by the person who has
physical possession of them).
Transactions
which involve the use of large amounts of currency or ‘bearer’ financial
instruments (financial instruments which can be cashed by the person who has
physical possession of them).
·
Large movements
of funds in and out of an account on the same day without any apparent
commercial reason.
Large movements
of funds in and out of an account on the same day without any apparent
commercial reason.
·
High
value deposits or withdrawals which don’t fit the normal patterns of the
movement of funds through an account, especially in cash.
High
value deposits or withdrawals which don’t fit the normal patterns of the
movement of funds through an account, especially in cash.
·
Movement
of funds ‘through’ (i.e. in and straight out again) an account by electronic
transfer.
Movement
of funds ‘through’ (i.e. in and straight out again) an account by electronic
transfer.
There are two important things for auditors to bear
in mind:
in mind:
·
Reporting
suspicious transaction to the authorities does not necessarily breach the
auditor’s duty of confidentiality to their client. Auditors may have a
statutory defense under these circumstances.
Reporting
suspicious transaction to the authorities does not necessarily breach the
auditor’s duty of confidentiality to their client. Auditors may have a
statutory defense under these circumstances.
·
Auditors
encountering what they think might be a suspicious transaction is in a
difficult position. Having knowledge of a transaction may include:
Auditors
encountering what they think might be a suspicious transaction is in a
difficult position. Having knowledge of a transaction may include:
·
Actual
knowledge;
Actual
knowledge;
·
Refraining
from making enquiries;
Refraining
from making enquiries;
·
Deterring
someone else from making enquiries;
Deterring
someone else from making enquiries;
·
Closing
one’s mind to what is obvious and ignoring it.
Closing
one’s mind to what is obvious and ignoring it.
So auditors should make the sort of reasonable
enquiries about a transaction which might be expected of a careful and
conscientious professional auditor and carefully note the client’s response to
their questions.
enquiries about a transaction which might be expected of a careful and
conscientious professional auditor and carefully note the client’s response to
their questions.
Having said that auditors must be careful when making enquiries not to
‘tip off’ their client that they have detected what they think is a suspicious
transaction and are going to report it the MLRO and thus, ultimately, to SOCA,
as they could be charged with an offence
