McGuffin Corp. is a manufacturer of aircraft parts for government-owned and commercial planes. The company's government contracts are usually performed on a "cost-plus" basis whereas its private contracts are competitively bid for a fixed amount. During your annual audit of the company's financial statements, you discover that it has been paying a related party for "consulting fees" out of the funds for a division that provides parts to the government. The related party then endorses the check back to McGuffin, who records the funds as "Donated Capital" in the stockholder's equity section of the balance sheet. The total of all these transactions is well under the threshold for overall materiality set for the engagement.

Describe the implications of this discovery for the audit.