Name of the firm

13/08/2016

PRIVATE & CONFIDENTAL

TO,
THE MANAGER,
address

Re: Forensic Investigation of Ms.ABC

Dear Sirs,

Attached is our report of the results of our forensic investigation of Ms. Abc. We have conducted our
investigation pursuant to our engagement letter dated 15/06/2016 between the Vyapari Co-Op Bank
Ltd and our firm.

Our procedures were performed with the due diligence. Our conclusions and findings are in
confirmatory of our engagement letter. Our analyses and observations are based upon information
provided to us as of the date of this report. It is possible that additional information may become
available following the date of our report and, if so, our analysis and observations could be affected
by such information.

We are happy to discuss any questions at your convenience.

For CA XYZ & Associates

Chartered Accountants

Forensic Audit Report of Abc Jewellers

Date of report: 13th August,2016

1. Background

Vyapari Co – op Bank Ltd. Launched a Gold Loan scheme in December 2015. Under this gold loan
scheme the rate of interest was lesser than the normally Gold loan taken.
The process of the Gold loan was the gold is hypothecated by the borrower with the bank. The bank
use to pay 70% of the value of the mortgaged amount.
A certified gold appraiser Mr. Abhijeet is appointed by the bank who after thorough verification
authorises the purity , the weight of the gold ornaments. An agreement is signed between the bank and
the valuer according to which he is responsible for testing the authenticity of gold.”

The bank has a Certified gold appraiser form in which all the details are mentioned by the appraiser
regarding the weight, the items & the purity of the gold. His seal and signature is there on this
particular form. He is paid by the bank for this process which is recovered from the borrower.
When the borrower comes to avail a Gold Loan firstly the bank calls the appraiser and if he certifies it
to be pure than only 70% of the value of the gold ornaments is availed as loan.
The whole thing is covered under the CCTV camera. The gold ornaments are then packed into the
packet and after locking the packet , four signatures are taken one of the bank manager, one of the
loan department officer, one of the certified gold appraiser & one of the borrower. So that if at the
time of closing of the loan when the packet is returned to the borrower he can check that the seal is
not tampered with.
A person named Ms. Abc gold making unit use to make jewellery with a 916 mark on the jewellery
advertising in the form of that jewellery with no making charges and the purchaser can pay the same
in instalments.
Many people started buying the gold from Ms. Abc . People who bought this jewellery has taken loan
against gold with Vyapari Co – op Bank Ltd. as the scheme was going on with low interest rate.
During the last three to four months, there had been a sudden rise in gold loan business of the Vyapari
Co – op Bank Ltd. and, after 3-4 instalments people stopped paying the instalments.

As the loan instalment was not paid by the people who has taken the loan on the same basis the board
of directors found something fishy and therefore, the board of directors had decided to appoint a
forensic auditor for auditing.

2. Objective

The objective of the forensic audit was

1. To audit and investigate why the instalments has not been repaid.
2. To check whether the borrower was genuine.
3. To check whether the jewellery marked with 916 mark was real
4. To suggest implementation of internal control required.

3. Use of Report:

3.1 The forensic auditor is required to submit two original copies to the Board of Directors of the
Bank for internal purpose only which cannot be used in any legal proceedings

4. Scope of forensic audit:

(i) The forensic auditor shall find why the borrower has stopped paying the remaining instalments.
(ii) The forensic auditor shall also find reasons for default as the loan amount was less than the actual
value of the gold and confirm that whether the borrowers were genuine

(iii)The forensic auditor shall find weaknesses in the internal control system related to borrower and
suggest improvements

(iv) Period covered in forensic audit will be last 1 year

5. Methodology:

1. The digital image of the bank software & the recordings of the CCTV camera is taken in the
supervision of two bank officers Mr. Ravi & Mr. Anil.
2. The same is kept in the safe custody.
3. The forensic audit team started with the loan documents i.e the loan application form, the
KYC documents submitted, the gold appraiser certificate.
4. The audit team physically verified how the gold kept as security is kept with the bank. They
noticed that the gold jewellery which is taken as security is kept in sealed envelope with four
signatures i.e of the bank manager, the gold appraiser, the loan officer & the borrower.
5. The whole loan process is captured in the CCTV Camera.
6. The lockers where the gold is kept is under the two supervision of the bank manager & the
loan officer.
7. The audit team also checked the agreement between the bank & the certified gold appraiser.
8. The audit team has checked all the loan agreements which have been sanctioned during the
last one year.
9. The key finding in the audit was that majority of the gold loan taken where the gold was
having a 916 mark and the gold paper were from Ms. Abc.
10. At the first instance when the gold was tested the gold was 100% pure as certified by the Gold
Appraiser Mr. Abhijeet
11. As the bank was not at loss as the loan was sanctioned @70% of the value of the gold & 3-4
instalments were also paid, bank can realize their money by selling it.
12. But instead of several reminders and notices to the default borrower no one responded the
board of directors were finding something fishy so the forensic auditors were appointed .
13. The modus operandi made by us was that as after several reminders & notices as the borrower
did not turn up after filing a complaint with the police authority & taking due permission we
melted all the gold jewellery.
14. Then came the real picture the jewellery was coated with pure gold with 916 mark but the
base of the jewellery was a metal.
15. When gone into much deeper it was found that the gold was purchased from Ms. Abc & Abc
has sold these gold to the near people.
16. The name of the borrower who has defaulted were taken in a excel sheet with the Loan
amount
Name of the Borrower Loan Amount
Radhika shah 125000
Priti Shah 75000
Rahul Soni 85000
Rajmati jain 100000
Shilpa Bhayya 50000
Bharati Kankaria 65000
Asha Lahoti 35000
Hema Kabra 45000
Sejal Shah 150000
Archana Asawa 225000
Arundhati Shukla 175000
Lata Tapadiya 115000
Prema Toshniwal 65000

17. Then all the documents of these persons were checked in detail. These were the close friends
of Ms. Abc
18. Ms. Abc was running a Ponzi scheme saying that if you are buying gold from me then there
will be no making charges and you have to pay only for the 10% of the amount of jewellery
you are buying at the start and remaining can be paid in instalment.
19. She also offered them that they can take a gold loan from Vyapari Co – op Bank Ltd. which
has launched a scheme with a very low interest rate. The benefit was that she was running a
scheme which was offering them the returns @12% while the rate of interest for gold loan
was only 10%.
20. So the people were interested in doing that they took the loan from Vyapari Co – op Bank
Ltd. & the same amount was deposited with Ms. Abc. At the beginning 2-3 months she was
really offering them the returns but after that she was not paying them the returns.
21. What the borrower use to do that whatever returns they were getting from Ms. Abc they were
depositing with the bank as the EMI.
22. But as suddenly Ms. Abc stopped paying the returns there was a havoc between the borrowers
how to pay the EMI. But later they thought that they can sell the gold & repay the loan.
23. When enquired about Ms. Abc she has wind up everything and ran away with the 10% gold
amount, the deposit which the people has made with her in the greed of more interest but the
genuine people faced the problem with the bank.
 24. All the default borrowers were housewives they were not much aware of this Ponzi scheme.
They all were involved in this scheme through a group. They decided not to entertain any
reminders or notices from the bank, as the bank can recover the dues by selling the gold.

KEY FINDINGS:
The audit team made the following findings:
1. The Loan officer should verify all the documents and the bills against which the gold is
purchased
2. The Gold Appraiser has not properly checked the gold which has led to a blunder.
3. The scheme which the bank has offered should be for a limited time.

CONCLUSION & RECOMMENDATIONS

1. Further independent investigation is called for on the conduct of Bank Manager,Loan
officer & the Gold Appraiser.
2. Two certified Gold Appraiser should be there on the banks panel.
3. Both the Appraiser should check & verify & sign the documents
4. The Gold Appraiser should have an experience of 10 years in the business of gold
jewellery making

For CA XYZ & Associates

Chartered Accountants

CA CA XYZ
Membership No.