- 10 Marks
Question
a) You have commenced the audit of Atika Ltd, a company involved in the importation and sale of plumbing materials. As part of the audit, you have noticed the following:
- Atika Ltd does not pay its suppliers in Germany through the bank. It relies mostly on the black market for the transfer of funds to its suppliers.
- Atika only sells its goods in Ghana.
- On 25 March within the audit year, there was a cash deposit of US$2,500,000.00 into the forex account of Atika Ltd.
- On 30 March the company transferred the following:
- US$499,999.99 to an unknown account in Cameroon
- US$399,999.99 to an unknown account in Kenya
- US$499,999.99 to an unknown account in Niger
- US$250,000.00 to the personal account of the Managing Director
- US$150,000.00 to an unknown company.
- The company’s general ledger shows a revenue of GH¢1,560,000.00.
- The import documentation shows purchases of GH¢36,000,000.00. There is no evidence of payment for the goods from Atika Ltd’s bank accounts.
- The closing inventory amounted to GH¢2,145,200.00.
The Audit Manager has raised the issue of money laundering considering the nature of the transactions above.
Required:
i) Explain to the team members the various stages of money laundering and show how the above transactions confirm the client’s engagement in money laundering. (6 marks)
ii) What are the obligations on the firm for money laundering? (4 marks)
Answer
i) The three stages of money laundering are as follows:
- Placement: This is when the criminal places illegal cash in what appears to be a legitimate business transaction. The deposit of US$2,500,000 into the forex account of the company may suggest the placement of illegal proceeds into the company.
- Layering: In this stage, the funds move through several transactions or ‘layers’. The transactions will be complex and may move the funds between different countries to make the source of the illegal funds more difficult. The transfers on the 30 March suggest the layering of the funds.
- Integration: In this final stage, the funds are moved back into the economy to convert them into a legitimate form. The purchase of goods suggests the integration of the funds back into the economy.
(3 points @ 2 marks each = 6 marks)
ii) Obligations on firms regarding money laundering:
- Appoint a Money Laundering Reporting Officer: The firm must appoint a Money Laundering Reporting Officer (MLRO) whose responsibility is to receive reports on suspected money laundering activities from other employees and report them to the appropriate authorities.
- Establish Reporting Procedures: The firm should establish procedures within the firm for reporting any suspicion of money laundering by client companies.
- Training and Education: The firm must provide training and education to staff on procedures for detecting and reporting suspicions of money laundering activities.
- Implement Systems and Controls: The firm should put in place systems, controls, and procedures to ensure that the firm is not used for money laundering purposes.
(4 points @ 1 mark each = 4 marks)
- Tags: Audit Obligations, Financial Crimes, Money laundering
- Level: Level 3
- Topic: Audit evidence, Current issues
- Series: NOV 2023
- Uploader: Dotse