The School Trust With One Accountant

Rank by risk, not by the size of the amount:

1. One person controls the entire cycle - receipt, custody of cash, cheque book, stamp and reconciliation. This is the root weakness; it permits teeming and lading, where one student's fee is used to cover another's, and the shortage is only exposed by absence.
2. Blank counterfoils with matching cash book entries indicate receipts were suppressed or amounts altered; the counterfoil is the only independent record and it is under the same person's control.
3. Cheques signed without invoices, with a vendor not on the master list, point to a possible fictitious payment of ₹85,000 - the highest-value single exposure here.
4. Delay in depositing ₹35,00,000 from March to 20 April gives 20 days of float for misappropriation or unrecorded use of trust money.
5. No surprise cash counts means the ₹22,000 shortage may have accumulated over months rather than days.
6. No internal audit or trustee-level review of reconciliation.

Group the two categories distinctly: cash-handling weaknesses (1, 2, 4, 5) and payment weaknesses (3, 6).

Perfect segregation is impossible with three staff, but compensating controls are not. The principle is that no one person should both initiate and record, or both hold and check, an asset.

• Receipting: switch to pre-numbered, serially controlled receipt books; a trustee issues and accounts for the books; the fees register total must be reconciled to receipts issued daily.
• Cash: deposit collected cash the next working day, with a second person carrying the deposit slip and a trustee receiving the bank advice directly.
• Reconciliation: the bank statement should come to the trustee's email, and reconciliation should be prepared by someone other than Suresh, or reviewed and signed by a trustee monthly with vouching of large items.
• Payments: mandatory invoice or voucher for every cheque, dual signatories, and a trustee-approved vendor master; changes to bank details require a call-back.
• Surprise counts: monthly, unannounced cash count by a trustee with a signed sheet.
• People: rotate duties during leave; make leave mandatory for whoever handles cash; act firmly on the ₹22,000.

All of this is documentary and costs almost nothing except trustee time.

The ₹22,000 must not be quietly absorbed into expenses. Raise a debit against the cash-in-hand account and credit Cash, creating an entry for shortage receivable from the responsible person, supported by the count sheet signed by those present. Then pursue recovery; if the trust decides to write it off, that requires a formal resolution, a separate expense line, and disclosure, not netting against fees. Test whether it is the visible part of a larger accumulated shortage by reconstructing collections from the counterfoils and deposit slips.

For the ₹85,000, treat it as a suspected fraudulent payment: obtain the cheque image, bank statement, signatory details and any correspondence; ask the payee for the basis of the claim; if no goods or services were received, report to the trustees and consider recovery and legal advice. The auditor's duty is to report the matter to those charged with governance in writing and to evaluate the effect on the financial statements and on internal control, communicating significant deficiencies rather than adjusting the books to hide them. If fraud by management is indicated, legal and regulatory reporting obligations must be considered.