Theft of Inventory and Other Assets – taking and removing inventory and/or other assets from the company premises without attempting to conceal the theft in the books and records. Losses resulting from larceny of company assets can run into the millions of dollars. Most schemes where inventory and other non-cash assets are stolen fall into one of four categories: 1. Larceny Schemes – typically committed by employees (warehouse personnel, inventory clerks, shipping clerks, etc.) with access to inventory and/or supplies. Employees simply carry company assets away in open view of other employees who tend to assume that their friends and acquaintances are acting honestly and having a legitimate reason for doing so. 2. Asset Requisitions and Transfers - requisitioning materials for some work-related project and making off with the materials, or overstating the amount of supplies or equipment and pilfers the excess, or inventing a completely fictitious project and stealing the assets "needed" for that project performance. 3. Purchasing and Receiving Schemes - manipulating the purchasing and receiving functions of a company to facilitate the theft of inventory and other assets, such as purchasing and misappropriating inventory and other assets by the perpetrator so the company will lose both the value of the merchandise and the use of the merchandise. 4. False Shipments of Inventory and Other Assets - creating false shipping documents and false sales documents to cause the victim company to deliver (unknowingly) the targeted assets to the perpetrator of the scheme and to make it appear that the inventory taken was sold rather than stolen.
An Audit Program that may help in detecting inventory theft:
• Do adequate, detailed, written inventory instructions and procedures exist?
• Do inventory procedures give appropriate consideration to the location and arrangement of inventories?
• Do inventory procedures give appropriate consideration to identification and description of inventories?
• Is the method of determining inventory quantities specified?
• Is the method used for recording items counted adequate?
• Are adequate procedures in place to identify inventory counted, ensure that all items have been counted, and prevent double counting?
• Are obsolete, slow-moving, or damaged inventories properly identified and segregated?
• Is the inventory reasonably identifiable for proper classification in the accounting records?
• Are counts performed by employees whose functions are independent of the physical custody of inventories and record-keeping functions?
• Do proper accounting controls and procedures exist for the exclusion from inventory of merchandise on-hand which is not property of the client?
• Do proper accounting controls and procedures exist for the inclusion in inventory of merchandise not on-hand, but the property of the client?
• Will identical inventory items in various areas be accumulated to allow a tie in total counts to a summary listing subsequent to the observation?
• Is the movement of inventory adequately controlled during the physical count?
• Are significant differences between physical counts and detailed inventory records investigated before the accounting and inventory records are adjusted to match the physical counts?
• Will inventory at remote locations be counted?
• Will special counting procedures or volume conversions be necessary?
• How will work-in-process inventory be identified?
• How will the stage of completion of work-in-process inventory be identified?
• Are there any other matters that should be noted for the inventory count?
