Auditors to pay $775,000 damages

Who sue who and for what?
Gaelic Inns (of Muddy Murphy’s Irish Pub and Penny Black of Boat Quay) sued Patrick Lee Public Accounting Corporation for $1 million losses suffered by Gaelic Inns.

How was the monies stolen?
The then Group Finance Manager, Ms Denise Ang did not banked in the daily bar takings between March 2003 and May 2004.

What is the Hon Judge Belinda Ang’s decision and basis?
The Judge ruled in favour of Gaelic Inns and awarded $775,000 plus interest.

Judge said “while an auditor is not expected to be a detective, the duty to audit carries with it an incidental duty to warn… managementt or the directors of fraud or irregularities uncovered”.

Was it uncovered by the auditor?
The audit was in progress in March 2004 while the crime was still in progress.

Mr Lawrence Phong, the audit manager in charge then, was reviewing the bank reconciliation statements. There was a discrepancy of about $680,000 noted between cash balance as per accounts and actual cash in bank!

Mr Phong was faulted for not doing an indepth investigation immediately upon its discovery, tardy in follow-ups and lastly for not highlighting the matter to the management.

Does this decision further increase audit risk to the auditors? Lawyer Philip Fong, representing Gaelic Inns, seems to think so. The decision highlighted the need to review process and audit procedures of cash, particularly in F&B or retail businesses.

However, such annual audits are still not expected to discover frauds unless specially commissioned to do so. In this case, the auditor had laid his hands on the most glaring documents highlighting the crime ie. bank recon statements. And thus the decision.

Good night.

P/S – Pic of December’s rain clouds


  1. well when Mr Phong discover the discrepancy he should have taken some investigation immediately after all 680000 is not peanut.I think in his capacity as a audit manager he have simply ignored his responsiblitlies to the client and his own professionalism.Think abt it 680000 and it not 6800 or 680.I really dont understand what was in his mind at that point of time .But this serves as a good warning to all auditor and would be auditors.


  2. I speculate the following sequence happened.Mr Phong asked for the bank-in slips from Ms Ang.Ms Ang may have told Mr Phong that the slips will be given to him after she ran some errands.Mr Phong would have proceeded to conduct audit in other areas.Days passed. Field audit concluded. Went back to office. A big issue became a non-issue???


  3. Mr Wong i understand sometimes heavy workload will makes someone forget or tend to put thing off temporary.But in Mr Phong case cant he have note dwn in his personal notebook or something like that as a reminder?i mean he ought to have priortise wat is impt and wat is less important.I feel he ought to have informed management abt it so at least pressure or qeuries is target at miss ang.In this way at least Mr Phong need not shoulder all the blames.Furthermore such a huge discrepanies had occured ,need not to say there must be a big problem somewhere.Therefore in my personal opinion i think when miss ang cant produce the bank slip in or delay in it,Mr Phong should jus informed straight away .


  4. Thus the Judge agrees with you. Ie. as an audit manager with the certain level of experience should have acted with greater level of care.The audit firm would thus have to pay for the mistakes.


  5. Looking at this case ,i am reminded of a similar case of chia teck leng ,the then finance mamager of asia pacific breweries.These two cases had a similarity.Both cuprit held high position in the finance department.Now the question is “Doesnt the mamagement have in place any internal control and audit to check on these high ranking personnel “.What have happened to all the so called internal control and audit in the company?


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