An internal auditor of Murry Manufacturing Company has just been assigned to perform an operational audit of the company’s inventory warehousing procedures. The company manufactures seven lines of bicycles, four lines of lawn mowers, and three lines of snow blowers. Inventory is kept in four company-owned warehouses strategically located around the country. The company has a stated objective of shipping all orders within 48 hours of receipt. The company has streamlined production to minimize the number of component parts of each product. However, the company does maintain a 10-year supply of old parts at its central location in Ohio to meet its customers’ repair needs. While gathering background information for the audit, the internal auditor notes that inventory levels have risen in tandem with sales increases. Sales are up 50% over the last five years, but inventory is also up 50% over that time. In addition, the last two external audits resulted in significant write-downs of inventory due to shrinkage, spoilage, or obsolescence.

Required

a. Identify at least four other items of importance the internal auditor might address during the preliminary survey of inventory and warehousing.

b. The director of internal auditing assigns you the task of developing appropriate criteria against which to audit. Identify three potential sources of criteria that should be consulted in developing your response.

c. Identify three potential criteria for the operational audit of inventory and warehousing.

d. Develop an operational audit program for the inventory and warehousing.