Credit memos are created when a product is returned. Credit memos reduce A/R (accounts receivable) by crediting the account, and it writes off the invoice. This also records a debit to the Sales Returns and Allowances account. You have noticed that the A/R clerk has created an abnormally high number of credit memos. You also notice the inventory does not reflect the additional inventory resulting from the sales returns and allowances. What would you do, and how would you document your decision? Tips for Discussion: 1) This isn't an ethics class. We aren't concerned with punishing anyone by terminating, prosecuting or any other consequence. 2) This isn't an HR class. We aren't interest in retraining the employee, investigating the employee or bonding the employee. None of that is related to accounting principles. 3) The inventory isn't there. Suggesting we count the inventory is not an appropriate suggestion since we already know there is a shortage because the inventory was counted. 4) We don't use the terms "audit" or "checks and balances" or "review" because they are vague and don't provide useful information. Instead of those terms, describe exactly the actions that should occur. 5) Talking to the AR clerk is appropriate but you have to give more information than just stating you would talk with her. You have to tell specifically what will be the context of the conversation. What questions will you ask her? What will you do based on her responses? 6) Focus on the process. What prompts the clerk to even issue a credit memo? Why would there suddenly be an excessive amount of credit memos? What is the process for receiving returned inventory?