Taxman is auditing my business, fully legit and declared everything. However cash reserve is an illusion.?

If the facts you describe become known to the "taxman" each of the "dippers" will have had undeclared and unreported personal income. The part where you "place it as miscellaneous expenses and DONT claim any deductions" is fraud but appears that there is no tax advantage gained. My guess and only a guess is that the "taxman" will not notice that you have been bad boys and girls and therefore not ess any additional tax liability. Just hope you never need to have your financial statements audited for any reason other than tax.