Side letters are legal. Lying to an auditor is not.
Ideally, auditors would verify the legitimacy of a transaction with the counterparty. As in, physically visit their office and speak to the person whose signature is on the contract.
Unfortunately, this is impractical when there are hundreds or thousands of such contracts every year. There aren’t enough auditors and there’s not enough time. So mostly, auditors rely on the assumption that they’re not being provided with falsified documents, and they’re not being lied to.
Unfortunately, that’s sometimes (often?) just not true. Even though it’s illegal, it’s still highly vulnerable to exploitation.
Ideally, auditors would verify the legitimacy of a transaction with the counterparty. As in, physically visit their office and speak to the person whose signature is on the contract.
Unfortunately, this is impractical when there are hundreds or thousands of such contracts every year. There aren’t enough auditors and there’s not enough time. So mostly, auditors rely on the assumption that they’re not being provided with falsified documents, and they’re not being lied to.
Unfortunately, that’s sometimes (often?) just not true. Even though it’s illegal, it’s still highly vulnerable to exploitation.