FORENSIC AUDIT : FINDINGS REPORT

CYRUS INDIAN SCHOOLS

Unauthorised disclosure prohibited

Forensic Audit and Investigation Services (FAIS)

542, New Spring Road, Hyderabad,

Telangana - 500072
Background

Cyrus Indian Schools (popularly known as CIS) is a non-governmental educational organisation in

India and overseas with over nine hundred schools seventy-five colleges and a university. It is based
on the ideals of the religious and social reformer, Swami Vivekananda. The education system also
comprises colleges offering graduate and post-graduate degrees in areas of study all over India.

English is the primary language of instruction, with students also receiving compulsory education in
Hindi and Sanskrit or a regional language. The CIS movement has grown to become the single largest
non-governmental educational society in the country, managing 950+ educational institutions, apart
from CIS Public Schools spread over the country and even in foreign lands, with an annual budget of
more than INR ₹1.8 billion. It employs 37000+ people and educates more than 22 lakh students every
year.

On January 18, 2020, CIS requested a proposal of work from Durga Abhiram P to perform a limited
scope forensic examination the Schools’ activity funds due to concerns of theft, fraud, or
embezzlement by their former Bookkeeper and to what extent, for the period covering approximately
two years (Jan 1, 2018 through November 30, 2019). The engagement was designed to assist CIS in
knowing the anomalies (if any) which have taken place during the above-mentioned period.

This report summarizes our procedures, findings, and recommendations as it relates to our assistance
with your evaluation of accounting and bookkeeping irregularities at Hyderabad branch of Cyrus
Indian schools.

We have performed the consulting procedures enumerated below solely to assist in determining the
fraud risk and value of funds that are unaccounted for, the causes for unaccounted funds, the value of
diverted funds, and the causes of fund diversion. The period subject to review was January 1, 2018
through November 30, 2019.

This consulting engagement was conducted in accordance with the Forensic Accounting and
Investigation Standards established by the Institute of Chartered Accountants of India. The scope of
this engagement is outlined in the body of our report. The sufficiency of these procedures is solely the
responsibility of those parties specified in this report.

Consequently, we make no representation regarding the sufficiency of the consulting procedures

described below either for the purpose for which this report has been requested or for any other
purpose. CIS remains responsible for their accounting records, activity funds, fraud prevention and
detection, and for maintaining effective internal controls over the financial statements and
compliance.
Executive Summary

Cyrus Indian Schools (CIS) and the Board of Education (Board) are responsible for providing the
public with reasonable assurance that it has adequate controls to safeguard assets. An adequate system
of internal accounting and operational controls is necessary to meet these responsibilities.

The purpose of this consulting engagement was to conduct a limited scope forensic examination of the
Schools’ activity funds to determine whether the Schools had suffered from theft, fraud, or
embezzlement by their former Bookkeeper and to what extent, for the period covering approximately
two years (Jan 1, 2018 through November 30, 2019). The engagement was designed to assist CIS in
determining the fraud risk and value of funds that are unaccounted for, the causes for unaccounted
funds, the value of diverted funds, and the causes of fund diversion.

In summary, in March of 2020 (year-end) the Principals of the Schools and the Finance Director
(CFO) at Central Office’s Finance Department (CO) became aware of several abnormalities in the
accounting of the Schools’ activity funds. These red flags included certain vendors calling to
complain that they had not been paid, the Bookkeeper failing to submit the required reports to CO
since December 2018, and an exceptionally low balance in the associated bank account, which
resulted in a call from the bank to the CIS’s CFO that there were insufficient funds to cover a check.

After the CFO called the Hyderabad Principal, the Bookkeeper’s Supervisor, the Principal notified the
Bookkeeper in charge of the funds that a comprehensive audit would be performed on January 23,
2020.

Based on the information available, our procedures determined that during the said Period
Rs.1,42,40,514 in cash receipts (checks and cash) should have been deposited; however, the
Bookkeeper only deposited Rs.82,72,544 into the bank during the Period, a difference of
Rs.59,67,970. This difference is the amount that is under suspicion of being embezzled for personal
use.

On discovery of the missing funds, we have informed the CIS who began to call vendors to determine
the amount outstanding to them, listen to their grievances, and provided an assurance that the same
will not be repeated. CIS made a concerted effort to pay all balances owed to vendors and paid Rs.
52,45,600 on past due accounts between the periods of January 2018 and November 2019.

We have initiated the Forensic engagement on January 23, 2020 and concluded the same on April 4,
2020. It is further clarified and agreed by both the parties that FAIS will not be responsible for events
occurred before or after the selected period of audit and are in no way concerned about the same.
Furthermore, the agreed upon scope is limited and narrow considering only the areas of bookkeeping
and transactions having monetary significance. Had we performed our procedures on other aspects,
we might have discovered few more observations which might be significant.
Summary of Procedures performed

We performed the following procedures in accordance with the standards prescribed by ICAI:

1. Established understanding of the processes and procedures of the school operations. (Official and
Unofficial) utilized by the school for handling cash during the period.

2. Identify the school’s revenue sources during the period.

3. Identify and scrutinize all activity fund transactions handled by the school’s bookkeeper during
the period.

4. Document all records supporting revenues during the period including:

a. Receipt and receipt books.

b. Documents used for tracking changes in the custody of cash.
c. Bank records and reconciliations.
d. Fundraising documents.

5. Identify fraud risks at the school period.

6. Issue a report that contains schedules of:

a. Revenues identified by source or event for the schools for the period.
b. Revenues which are unaccounted for or may have been diverted.
c. Expenditures identified by event which were paid from activity funds.

Detailed Procedures performed

CIS may employ consultants when appropriate to carry out tasks or projects that enhance the
effectiveness of the school’s operations (1) when the board does not have the specialized competency
on its staff or (2) when such assignments would be burdensome to the school staff when added to their
full‐time assignments. The kinds of assistance sought from consultants may include (1) conducting
fact‐finding studies, surveys, and research; (2) providing counsel or services requiring special
expertise; and (3) assisting the Board in developing policy and program recommendations. The
employment of specific consultants, within the budgeted funds of the CIS, will be the responsibility of
the Central Office.

1. Processes and procedures

a. We interviewed those who were involved in the process managing the school funds,
including: the Schools' Principals, the Finance Director or CFO, Business Manager,
School Administrative Assistant, Teachers, Educational Assistants, Attendance Monitor
and IT Director.
 b. We reviewed the CIS Board of Education's policies and the internal procedures. We
identified differences between the written policies and procedures (official) and the actual
practices occurring daily (unofficial) and have reported results to the board.
c. We became familiar with the processes and procedures as we tested the records and
reviewed what the BPS Finance Department had already collected on this matter.

2. Identify Revenue sources

a. We identified revenue sources in the CIS’s annual audit and activity fund disclosures.
b. Interviews assisted us in determining what the revenue sources should be.
c. To the extent that information was available, we identified the sources and applications of
the funds and other types of activities that should have gone through this activity fund
during the time period requested.
d. We reviewed CIS provided emails, cash receipt tickets, and the school event/fundraiser
listing to ensure we had a complete listing of revenue sources (activities) during the
period.

3. Identify and scrutinize transactions

a. We applied forensic auditing procedures to the transactions handled by the Schools’
Bookkeeper during the period requested. In general, the information provided to us, the
Bookkeeper’s records, were incomplete and inaccurate. We relied substantially on records
from the bank to complete our engagement.

4. Document Records that support revenues

a. We examined, to the extent available, receipts, receipt books, documents used for
tracking changes in the custody of cash, bank records and reconciliations, fundraising
documents, emails, contents of the Bookkeeper's office, information provided to us in
interviews, reports from CO, audited financial statements, Board minutes, invoices,
various deposit and expenditure listings, monthly packets from the Bookkeeper to CO,
electronic records, Visions report of vendors paid out of general fund and various text
messages.
b. The items listed above help us pull information into useable formats (such as graphs and
pivot tables) to analyse trends, risks, and causes of the alleged fraud, deficiencies in
internal controls, and non-compliance.
c. We compared the records to applicable policies, procedures, regulations, and state laws
and have communicated the results to the board.

5. Identify Fraud Risks

a. Regarding potential collusion and conflicts of interest, we believe the Bookkeeper's
handling of activity fund cash along with her cousin in the central office and interactions
with her husband in the IT department significantly increased CIS's risk of conflicts of
interest and collusion.
b. We identified risks and our recommendations for strengthening controls to help CIS
prevent and detect fraud in the future.
Deficiencies in Internal controls:

We have identified the following deficiencies and pitfalls which led to these happenings. We have
also provided an abstract recommendation after each of the findings. Detailed recommendations are
included in the deliverables alongside this report and evidences to the above mentioned facts.

1. Lack of Segregation of duties – It is a basic building block of sustainable risk management and
internal controls for a business. The principle of SOD is based on shared responsibilities of a key
process that disperses the critical functions of that process to more than one person or department.
Without this separation in key processes, fraud and error risks are far less manageable.
In the current scenario, the bookkeeper was responsible for making recording transactions in the
books and was having a complete control over the cash and bank balances. We recommend
having a separate person for the latter job which can reduce the risk of fraud predominantly.

2. Lack of periodic bank reconciliations – It is advisable to have periodic bank reconciliations

between the records and the bank statements which provide us reasons for variations. (if, any)

3. Insufficient Accounting records – We have observed that records are not updated frequently,
which is a concern if not mitigated would result in improper reporting in the financial statements.
It is advisable to update the records on a timely basis.

4. Employee background checks – CIS performs background checks without seeking assistance
from any third parties. In the given case, the bookkeeper was having related persons in Central
office and other departments, which contributed to the factor of Fraud. It is advisable to ensure a
thorough background screening is made before the board hires a person.

Deliverables

CIS group of Institutions will get, along with this report, the recordings of interview sessions
conducted with the personnel, evidences collected during the course of engagement, recommendations
made by FAIS in relation to the identified deficiencies in the internal control.

Conclusion

Based on our investigation procedures, we conclude that the funds of the institution have been
misappropriated by the bookkeeper and we also have a significant evidences to correlate the same.
We have, through our procedures have become aware about the financial position of the employee.
The financial pressures, the opportunity of misappropriation due to lack of segregation of duties and
the rationalization of facts by the bookkeeper which together constitute the fraud triangle has been the
inception of the unethical practices conducted over the past two years.