Case Study : Potential Fraud Risks Related For Coach Inc. Inventory Policy
Coach is exposed to the following:
1) Employee theft: If proper inventory controls and segregation of duties are not correctly implemented, employees may steal items after delivery to the warehouse, or may have goods delivered to a location that would allow them to keep the items for personal use.
2) Fraud through falsified records: If there is no purchase order authorization control in place, an employee could create bogus purchase inventory orders to request payment from Coach and keep the money for personal use.
3) Theft and financial fraud: If there is no segregation of duties between the person in charge of receiving the customer’s payments and the employee updating the account receivable account, employees in charge of accounts receivables could embezzle money by “lapping” customer payments.
Extended procedures to detect misstatement/theft of inventory and financial fraud.
To detect possible misstatements or theft of inventory I will:
1) Search for unrecorded liabilities by looking for open purchase orders, unmatched vendor invoices, and unmatched receiving reports;
2) Investigate suspicious behavior from employees such as evidence of living beyond their means, receiving of complaints from customers about lost goods, or sudden spikes in the number of damaged goods, and any sharp drops in sales;
3) Conduct a walk-through of the warehouse and be present when inventory…