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79. AUDIT OF DEBT ON LOANS. ASSESSMENT OF THE INTERNAL CONTROL SYSTEM
1. Ask your accountant to provide data on the largest loans for the reporting year. From loan agreements, determine loan terms, objectives and interest rates.
2. Examine the collateral issued for the loans received.
3. Ask an accountant to prepare data on how the principal amount of the loan will be spent. Assess the general criteria for the feasibility of attracting loans.
4. If you identify suspicious credit transactions, discuss this situation with the management of the organization being audited.
5. Find out who initiated the loan on these terms, whether alternative lending options were considered, who made the final decision on choosing a bank and loan terms, and in what documents this is reflected.
6. Determine who makes decisions about the use of credit, who gives instructions on payment using credit resources, and in which document this decision is recorded.
7. Assess the state of internal control in this area.
Illustration. If an organization has opened a special current account where only loan funds are received, the expenditure of which can be easily verified, confidence in the reporting of this organization is higher.
When checking, a special place is occupied by questions of the intended use of the loan. Currently, the purpose of the loan is not always clearly indicated in the text of the loan agreement. The wording "to replenish working capital", "for current needs", etc., allows you to use the loan in any direction.
If the purpose of the loan is clearly stated in the agreement, the auditor should check its intended use.
The main problem during the audit is the distinction between the concepts of "distraction" and "use", which is interpreted ambiguously even by the judiciary.
For example, an organization received a targeted loan for the purchase of equipment, but bought raw materials with this money. At the same time, the organization refuses to acknowledge the fact of misuse, arguing that it only diverted the loan funds: finished products will be made from raw materials, they will be sold, i.e., the money will be returned and used for its intended purpose.
A similar situation arises with the placement of targeted loan funds temporarily on bank deposits, in bank bills, etc.
The difficulty of checking the intended use of the loan creates a large number of settlement accounts of the organization, while money is constantly transferred from account to account, if there are also significant cash inflows from other non-credit operations, the loan funds "dissolve" and it is almost impossible to track their use.
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