CASE 1

The following check which might indicate kitting are 202 & 204.

Kitting is a form of fraud that causes cash to be overstated by having it in two or more bank
accounts simultaneously. The bank accounts referred to are the clients cash book and not the
accounts present at the bank and may be in different locations.

We determine where overstatements can be as at december 31, 2001 assuming these are the only
transactions that took place.

We assume that Disbursement cash book has cash =300 at dec 29, 2001 and we write 100.00
dollar checks on dec 30, 2001

Case check 101

disbursement bank account == 300-100 ==200 at dec 31, 2001 because recording was made on
Dec 30

Amount that should be there on Dec 31 == 200

Appears to be fine

Case check 202

disbursement bank account == 300.00 no recording as yet until Jan 3

Amount that should have been there on dec 31 == 200.00

Cash appears to be in both disbursement account and receipt account if we are to follow the bank
statement on the receipt side

there is an overstatement here

Check case 303

disbursement bank account == 300-100 == 200 since recording has been made on Dec 31

Amount should have been 200 at Dec 31

This appears to be fine

Check case 404

disbursement bank account at Dec 31 == 300 no recording until jan 2

Amount should have been 300-100 had recording of disbursement been made.

Amount appears to be in both disbursement and receipt account if we are to follow the deposit in
the receipt BANK statement

There appears to be an error here

Errors appear to be on check 202 an 404. In these two cases an additional 100 needs to be recorded
in the subsidiary bank account for Dec 31 since they were already at the bank. when the bank
reconciliation is done the clerk will notice these deposits in the account in december and he will
have to account for them in the clients bank records -- this is a bit of FAR here

CASE 2

Bank transfer schedule disbursement receipt recorded in books 12/31/X5 paid by bank received in banks

CASE 3

The following are the circumstances under which a client may understate assets:
1) The management of a company may be motivated to understate assets to minimize income tax
payable.
2) Use unrecorded bank accounts to make illegal payment or bribes.
3) The management may underreport assets by deferring income to the subsequent year.
Thus, in such situations there is risk that not all cash may be recorded in the financial records. For
example, a charitable trust may receive a large amount of funds as cash donation, creating a
significant inherent risk that not all cash receipt may be recorded in the books of accounts.