You have been hired by the Board of Directors and the Audit Committee for Best Products Company to investigate why inventory is missing, and to recommend and implement a series of internal control measures to attempt to reduce or eliminate the misplacement and/or theft of inventory items.

To save on time and paperwork, all managers and employees at Best Products can complete their own purchase orders and send the orders to the suppliers of their choice. A copy of the purchase order is used as a receiving report. Quantities of all items ordered are listed on the receiving report, and this enables workers receiving goods to reconcile the quantity of goods received with the quantity of goods ordered. Employees receiving goods are not required to sign for any shipments received, which also saves time. Goods received are placed on the loading dock and remain there until they are stored in an unsecured storage area. The owner of Best Products believes that technology is another waste of money, and does not use cameras, bar codes or RFID tags to identify inventory items. The warehouse manager completes all the accounting for items purchased and provides a weekly update report for the accounting department. The accounting department manager is the best friend of the warehouse manager, and never takes a physical inventory count or reconciliation. If any items are missing from a shipment, the warehouse manager notes this on a special memo that he personally delivers to the accounting manager. Since follow-up on missing items requires time and effort, any missing items with a value of $1,000 or less are immediately written off and debited to cost of goods sold.

Purchase requisitions are not required or used, and supplier invoices are securely filed away as soon as they are received from the supplier. When the invoices are paid, they are destroyed, which also saves time and filing space.

The owner of Best Products Company is irritated because he will have to spend money to pay for what he considers to be a waste of time and useless examination of internal controls. After all, these so called internal controls will probably end up costing a lot of money and have no real benefit. He has brought this to the attention of the Board of Directors and showed them at the last Board Meeting that inventory turnover has increased, which is good.

ANSWER THE QUESTIONS ON THE FOLLOWING PAGE REGARDING INTERNAL CONTROLS FOR BEST PRODUCTS COMPANY

P3 (a) Identify physical internal controls that should be implemented at Best Products Company: (4 points)

P3 (b) Identify documentation internal controls that should be implemented at Best Products Company: (4 points)

P3 (c) Identify IT / technology internal controls that should be implemented at Best Products Company: (4 points)

P3 (d) Identify any other internal controls that should be implemented at Best Products Company. Why might inventory turnover improve if goods are being stolen? (4 points)