Question

Assume that you are a consultant to a small business. The owner of the business does not have an accounting background and has turned to you for assistance.The owner believes that one or more employees may be stealing inventory from the business. Write a memorandum to the business owner in which you identify the type of business and answer the following questions:

Identify two (2) signs that an employee might be stealing from the business that detail what should the owner look for.

Outline two (2) possible controls that can be established to prevent the inventory theft.

What type of disciplinary action you would recommend for employees who are discovered to be stealing inventory?

Comment on the memos of at least two of your peers.

Answer 1

From: ________

Date: 28/02/2018

To,

_____________

Subject: Inventory Theft - signs and preventive measure

Dear ___,

In context to the above mentioned subject, I would like to put some light on the matter. Inventory loss, spcifically in a business like yours, is something to be looked upon very carefully. This is an abnormal loss and not tolerable at all. Employees are one of the important resources of the business and one resource stealing the main product of the business is not a good sign. Therefore, in order to check on this type of issue, you can look for the following signs, that an employee might be stealing your inventory:

1. Abnormal Physical Inventory Count :  This is the most effective sign that reflects that employees are stealing from you. Inventory check at a physical level ensures that the quantitites received are in line with the quantity mentioned in Goods received note. The physical count that is not matching with the quantity in your inventory accounting software, it is a sign that inventory is missing. Abnormal counts mean there is an abnormal reason. Here, you may check the details of your suppliers,because there may be fake supplier to whom cash is paid, order is booked, but in fact, no goods are supplied by him.
2. Employee Behavior : This again is a sign, that is very helpful. Have checks on the employees who stay late in the factory or godown premises, and carry handful of bags while leaving. A quick check on their behavioral patterns, as in their nature, the communication with fellow employees, with vendors, suppliers, may show, the level of satisfaction in their work. Because, those unsatisfied with their pay and work may opt for stealing and selling in the open market.

Further, to avoid such thefts, following controls may be assigned:

1. Strong Internal Checks: This measure, prescribes that any transaction should be handled by two or more employees in such a manner that the work done by one is automatically checked by the other for detection of irregularities or errors. This means, a single employee would not be allowed to process a set of transactions solely. There should be an hierarchy in assingment of work.
2. Use of Technology: There are certain measure such as a CCTV camera which can record such thefts and so, the employees are aware that they are under survellience avoiding any abnormal behavior. Bar code scanners are also a measure of controlling these types of thefts. Installing security systems can also help to some extent.

Even after taking due precautions, any employee is found involved in theft, following disclipnary actions is recommended:

1. Communication with the employee: This is the first action. Communicating about the irregularities and giving advices as to correction of the same. Issuing memos can also be done, stating the irregularities and its consequences as in, suspension from job, no pay for the said time period.
2. Suspension/ Termination from job:  Even after the above stated communication, there are still thefts occuring, then suspension without pay for a short period may be done, and if the situation requires, termination of employment has to be done so as to avoid inventory loss.

I hope this information is to the best of your satisfaction. In case of further queries, please feel free to contact.

Yours Truly,

________