Question:
1. If you are brought in as Sandra’s outside forensic accountant, what advice would you
give her?
2. Which employees could be stealing inventory? Describe one or two possible schemes
applicable to this case.
1. If you are brought in as Sandra’s outside forensic accountant, what advice would
you give her?
If I were the outside forensic accountant, firstly I would suggest Sandra to check the
inventory condition from past years with the purpose of investigate the level of inventory
shrinkage over the years. Normal shrinkage over a period of time can be computed
through historical analysis. Excessive shrinkage could explain a host of fraudulent
activity, from embezzlement to theft of inventory (Clumeck, Stern, Schenkelberg &
Getzoff).Next is to investigate whether there are some analytical anomalies concerning to
inventory activities as follows:
The Inventory asset value does not change for several periods, or the change is minimum
The gross profit percentage never changes from period to period
Inventory values are increasing a faster rate than sales
Dramatic changes to the inventory turnover ratios
Shipping cost as a percentage of inventory changing dramatically
Low inventory valuation even though the warehouse is full of inventory or in contrary
Shipping invoices that cannot be traced to purchase sales
Standard costs per unit vary widely from actual costs per unit for an extended period of
