¬© John A. Tyler
Have you noticed that on TV news channels if there is a current question about some event, such as an explosion in Oklahoma City in 1995, there is an immediate demand about what was the cause was. In this case as in others there was no immediate answer, but the news interviewers are impatient: “I want an answer.” Do you think it was an Arab conspiracy?
Some news stories are clear about the cause of a tragic disaster such as a tornado in Massachusetts, or at least clear about what happened even if the weather forecasters seem unclear about why Massachusetts, when tornados are so rare.
Cable channels often poll viewers about what they think is the answer to a news question and treat the responses as newsworthy. For me the results of polling may be interesting, but these are no real answers as to cause.
When I was in accounting school, I was enrolled in an auditing class taught by a practicing CPA. He was known for his tough exams and for the false clues he would sprinkle in the information regarding a case study, which became an exam question.
His instructions to us before every exam could be summarized in one command: “Ground Your Assessments.” In other words, look for a factual basis for your answers, to the extent relevant facts are available.
An example: you have been asked to perform a forensic analysis of a client’s books to discover why the cash flow from customers has been declining even though the sales have remained more or less constant.
You interview the bookkeeper who tells you that the reason the cash is declining is that more money is being spent to purchase inventory. The bookkeeper’s statement is true, but it doesn’t relate to the matter of customer cash collections. Money used to buy inventory is not the same as money paid by customers to liquidate receivables.
It turned out that the company’s products were sold by route deliverymen, who often collected cash from customers at the time they delivered the goods, and then turned the cash collections over to the bookkeeper at the end of the day.
The bookkeeper was not depositing the cash into the company’s bank account; he was keeping it for himself. Further, he was voiding sales invoices to customers, so it would not appear that anything was wrong.
What the bookkeeper did not know was that the accounting program kept track of deleted transactions, indicating the date, user, and affected account of the missing information.
I ran a report of deleted transactions over a two year period and found that there were about 800 missing sales invoices, totaling around $50,000. The bookeeper was fired, and to avoid prosecution, reimbursed the company for the missing funds. The total sales for the company over the same period were around $2 million, so $50,000 is 2.5%, which might not be noticed by the management.
There were a couple of lessons from this event. First, someone else besides the bookkeeper should be making cash deposits.
Second, if you ask a question about deposits and the person you ask talks about spending instead, you should be skeptical about the relevance of the answer, and continue your questions.