A medium-sized, family-owned business operates as both a distributor and a retailer. This business distributes widgets to independent retailers, as well as operating its own retail outlets. Last year, the business suffered a loss of an estimated $1 million dollars in inventory. Several factors played into the inventory theft, including poor internal controls, a lack of timely accounting records, and difficulty in measuring and tracking inventory items.

The theft was perpetrated by several long-time employees over the course of several months. A portion of the inventory was delivered to one of the company's customers and a portion of the inventory was redirected and sold for cash which was split among the accomplices. One of the employees involved was responsible for recording inventory shipments. Misappropriated deliveries were shown as delivered to the company-owned retail outlets. As a matter of company procedure, the company only invoices its regular customers. Company-owned retail outlets are not invoiced upon delivery of inventory. Inventory was not reconciled or monitored for the company-owned retail outlets which enabled the misappropriated inventory to be removed from inventory records without detection.

Identify and describe one of the following:

• a measure that could have prevented the theft, or
• a measure that could have detected the theft, or
• a step to take once fraud is suspected.

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Categories Level 1 (50 - 59%) Internal Controls Discussion Level 2 (60 - 69%) Level 3 (70 - 79%) Level 4 (80 - 100%) Knowledge and Understanding: identify internal controls related to inventory. AP2.06. Identifies internal controls related to inventory with limited accuracy. Identifies internal controls related to inventory with some accuracy Identifies internal controls related to inventory with considerable accuracy. Identifies internal controls related to inventory with a high degree of accuracy. explain the role of internal controls. AP2.06. Explains the role of internal controls with limited insight Explains the role of internal controls with some insight. Explains the role of internal controls with considerable insight. Explains the role of internal controls with a high degree of insight. Thinking: analyse the role of technology in the management and control of inventory. AP2.05. Analyses the role of technology in the management and control of inventory with limited effectiveness. Analyses the role of technology in the management and control of inventory with some effectiveness. Analyses the role of technology in the management and control of inventory with considerable effectiveness. Analyses the role of technology in the management and control of inventory with a high degree of effectiveness. Communication: Describes how internal describe how controls are used to internal controls manage and control are used to inventory with limited manage and clarity. control inventory. AP2.05. Describes how internal controls are used to manage and control inventory with some clarity. Describes how internal controls are used to manage and control inventory with considerable clarity. Describes how internal controls are used to manage and control inventory with a high degree of clarity. Application: apply knowledge of internal controls to evaluate a specific situation. AP 2.06. Applies knowledge of internal controls to evaluate a specific situation with limited relevance. Applies knowledge of internal controls to evaluate a specific situation with some relevance. Applies knowledge of internal controls to evaluate a specific situation with considerable relevance. Applies knowledge of internal controls to evaluate a specific situation with a high degree of relevance