Question: Over the Line? The Wang Consulting Group is headquartered in the United States with subsidiaries in Canada and the Cayman Islands. Proceeds from its Canadian subsidiary are sent directly into its U.S. bank accounts using electronic fund transfers. Fore and Moore, auditors of its U.S. company, noted that several times the transfers were made prior to the date that the services had been rendered by the Canadian subsidiary. The monies in its U.S. headquarters are invested in commodity trades and, once completed, the trades' proceeds are transferred to the Cayman Islands subsidiary.
The U.S. company recognizes Deferred Trading Assets on its books related to the transfers and these deferred assets are supported by contracts with its Cayman Islands subsidiary. Harry Morgan has recently been put in charge of the Wang audit, and he thinks these cash transfers are of a questionable legal nature. When he approached Frank Bobbister, a senior partner at the accounting firm handling the audit, Frank told him that the auditors' main concern is with the year-end figures unless one of the financial transactions threatens the viability of the company. He closes his discussion with Harry by telling him to "forget about it." Are the activities of Wang Consulting so suspicious that they should be reported to authorities and which authorities? Should Harry collect any additional information before making a final decision?