11-95. Assume you are the forensic accountant engaged by Spring Pvt Ltd, a supermarket. Your client suspects that Bernice Tan, an employee, has carried out a

“teeming and lading” scheme. She delayed depositing cash on the day of sales into the supermarket’s bank account, and instead used the cash for her personal benefit. The misappropriation of funds, roughly amounting to $1m, was not detected by Spring’s management as they did not review the bank reconciliation statement. This took place over a period of three years. Also in the last two years, Spring Pvt Ltd suffered losses. The supermarket is convinced if it had sufficient cash it would have been able to invest in more equipment to boost its sales. Spring Pvt Ltd wants to know if its external auditors should be held liable for discovering the fraud earlier.

a. Explain methods that you would use to determine the opportunity cost of cash used in the

“teeming and lading” scheme.

b. Explain the importance of bank reconciliation as an important internal control.

c. What are the responsibilities of external auditors to Spring Pvt Ltd?