How To Prevent Inventory Fraud

The following sample essay on impact of inventory fraud can be expensive and affect an organization’s reports. Inventory errors will not only affect the balance sheet but the Income statement as well. Errors from theft or fraud wealth the physical Inventory will misstate the costs of goods sold, gross profit, and net Income. If the losses from fraudulent are covered up, the organization will be misleading the government by not abiding by the fair disclosure responsibility, and basically guarantees unreliable ND false information within its financial documents.

Prevention is the key to deter this type of fraudulent behavior.

Essay Example on Inventory Fraud Schemes

Strong controls. Policies that communicate theft will be prosecuted, and a hotlist can be introduced to this incidents. Since employees are at the heart of this problem, companies should have criminal and background checks on employees before they are hired. However, criminal and background checks do have there limitations, since the majority who steal may have never been caught.

In addition, companies can also be checked to ensure that they have a valid tax id number, and that no complaints have filed with any agency such as Better Business Bureau. Random inventory checks instead of pre- planned inventory counts should be used. The inventory counts should match what is on hand to what is on record. In addition, to prevent collusion amongst employees during the inventory count the organization can change the personnel “counting” during this period. The shorting of shipments’ can be a tricky situation that may involve the supplier, delivery personnel, and the company employee.

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Control over the inventory should begin as soon as the inventory is received. A way to control fraud is by the use of pre-numbered receiving reports that are to be completed by the receiving department as soon as a shipment arrives. To make sure the inventory received is what is ordered, each receiving report should match the company’s original purchase order for the goods. In addition, the price of goods on the purchase order, should be compared to price the vendor billed the company on the vendor’s Invoice. Lastly, additional security measures can be Implemented to prevent theft. For example, restricting unauthorized access, If business Is not operating the area should be locked, and when removing merchandise the use of requisition forms authorizing the removal of Items. In conclusion, Inventory fraud Is an expensive Illness that plaques companies worldwide. Inventories are essential for merchandising and manufacturing businesses. Prevention and Internal control procedures are needed to protect inventories from damage and employee and consumer theft. By genes as not being criminal, so where does it begin or where does it stop?

There is no easy schemes may include management and its vendors suppliers. The impact of inventory fraud can be expensive and affect an organization’s reports. Inventory errors will not only affect the balance sheet but the income statement as well. Errors from theft or fraud within the physical inventory will misstate the costs of goods sold, gross profit, and net income. If the losses from not abiding by the fair disclosure responsibility, and basically guarantees unreliable Prevention is the key to deter this type of fraudulent behavior. Strong controls, achieved is what is ordered, each receiving report should match the company’s invoice. Lastly, additional security measures can be implemented to prevent theft. For example, restricting unauthorized access, if business is not operating the area should be locked, and when removing merchandise the use of requisition forms authorizing the removal of items. In conclusion, inventory fraud is an expensive illness that plaques companies worldwide. Inventories are essential for merchandising and manufacturing businesses. Prevention and internal control procedures are needed to protect.