Completeness is a key auditing concept that has an important role in the forensic accounting arena. Auditors and forensic accountants alike are tasked with interpreting and understanding the numbers found in the financial records, but are also required to take a step back and determine whether all transactions that SHOULD be there are there. In other words, are the financial statements COMPLETE?
This concept is one that many of my former clients wish they understood before they met me. Many cash skimming or cash larceny schemes could be detected with a basic knowledge of completeness.
Consider this. You sell a product or service at a stated rate, say $100 per unit. You know you've sold 10 units this month. We could all agree that you've earned $1,000 this month. However, your financial statements indicate that your revenue is only $500. This situation indicates that your financial statements aren't complete; and further inquiry is necessary. Perhaps the bookkeeper is behind in recording transactions; or, perhaps there are more sinister reasons for the reduction in stated revenue.
As part of the management team or board of directors, you are fiscally responsible to your organization. Wrapping your arms around your expected revenue and comparing that figure against recorded sales (and deposits received) will tell the story of whether your organization's financials are complete.
Some examples include:
Private Schools:
· # Students x Tuition Cost
· # Students x Registration Cost
Sports Organizations:
· #Players Signed Up x Registration Cost
Fundraisers:
· # Items sold x cost per item
· # Tickets sold x cost per ticket
Service Provider:
· # Billable hours x cost per hour
If your organization is on the cash basis of accounting, then the revenue per the profit and loss statement should match both the cash deposits per the balance sheet as well as the source documents indicating sales activity that month.
If your organization is on the accrual basis of accounting; the double check is slightly more complicated. The revenue per the profit and loss statement should match the sum of deposits per the bank plus the change in the accounts receivable aging between the prior and current months.
Speaking of receivables - make sure the decrease in stated receivables is a result of deposits to your bank account and not unauthorized write-offs of revenue!
Putting simple, yet effective controls and double-checks in place can make your organization more profitable; allowing you to better manage cash flow. Controls also provide a safety net - one that promises to reduce your risk of fraud.
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