Dear Auditors Institute,

I am currently auditing a fund that lent a total of $125,000 to an unrelated business in the Philippines.

Loan agreements and repayment schedules have been prepared.

However, I observed that the funds were transferred to a member of the fund and then transferred back from the member to the fund.

Upon inquiry, the trustees provided a declaration from the unrelated party stating that the funds were given directly in cash during regular visits to the Philippines to avoid exorbitant fees charged for bank transactions. The declaration states that the unrelated business makes payments to the fund in cash for the same reasons.

I believe that this arrangement may constitute a breach of s.52B(2)(d), which requires keeping the money and other assets of the fund separate from any money and assets held by the trustee personally.

I have requested evidence of the funds being withdrawn from the member's account and deposited back (to ascertain the date on which the fund/cash was deposited back in his personal bank account to determine if s.65 of the SISA was breached), but the trustees could not provide this evidence.

Could you please provide your opinion on this matter?

Would you recommend qualifying the audit report, and if so, based on which sections?

If the audit report is qualified, I believe that a contravention report should be lodged due to the financial threshold test ($30,000).

I also note that the trustees have advised me that they were unaware of this issue and will explore options to address it moving forward.

Thank you for your assistance.

Sincerely,

Mr. Jean Rey