VII. Warehouse:

The warehouse distribution manager and his clerks report to the country manager in their respective country. Most of the country managers defer to their warehouse distribution manager and except for limited oversight do not get involved in day-to-day warehouse issues. Inventory status reports are issued quarterly to the country manager for approval before being forwarded to the CFO. Each report is submitted as an Excel file. Some files can be quite voluminous. The inventory status shows by SKU the current on hand balance and the balance for each of the prior three quarters.

The CFO manually compiles a summary report for the CEO which shows by country the overall inventory by category vs. forecast.

The inventory shrinkage, which is the difference between inventory on the books and what is actually on hand, has increased every year for the last five years. Overall inventory shrinkage has gone from 2% to 4% with the best country at 1.5% and the worst at 6% in 2021.

What are the two most significant areas of concern (a) as an internal auditor as well as a control action to mitigate risk (b) and one COSO principle (c)?