Question

Discussion topic 2: Research – Asset Misappropriation

Conduct research in the Library accessed through the home area of the course room and locate an article on noncash asset misappropriation. Discuss the article in terms of prevention and detection.

Answer 1

The most common form of non cash misappropriation is theft of organisation's inventory.This is called as "Shrinkage". This occurs when a physical inventory count shows less than what is shown in the inventory records,which might have been stolen. The employee removes the inventory from the company premises and transport's them to offsite location.He either makes personal use or sells at a discounted rate.He removes the inventory without attempting to conceal in the theft in the books and records.

Prevention:-

• Establish physical and logical access controls to the warehouse(s) or supply centers to prevent employees theft.
• Review all unauthorized after-hours access to the buildings where the inventory is stored.
• Review and investigate the unusual trends relating to write off's of inventory in the accounting records.
• Implement a tip line for other employees to report suspicious activity.
• Proper documentation
• Segregation of duties
• Physical safeguards

Detection:-

• Analyze the perpetual inventory records.
• Ending inventory = Beginning inventory + receipts - shipments.
• Unexplained entries might reveal embezzlement losses.
• Are all increases explained by source documents like GRN?
• Are all decreases explained by source documents like sales invoices,approvals to remove scrap inventory.
• Are all sales properly matched with a shipping document?
• Are any shipping documents not associated with a sale?
• Is inventory disappearing from storage?