Linda Smith is a warehouse manager for the ABC Rig & Accessories Supply, a busin

Question

Linda Smith is a warehouse manager for the ABC Rig & Accessories Supply, a business that operates across the country. Linda has been around ABC Rig & Accessories Supply for many years and has had personal interaction with most of the warehouse managers within the company at the various locations. Each year, in December, a physical count of inventory is completed and compared against the inventory records of the accounting systems.

Linda recently "loaned" her brother in law 50 pieces of large piping used for digs on oil rigs. The promise and intentions were to have these 50 pieces of large piping back to Linda before the inventory count was completed. As with most promises and intentions things went wrong and the 50 pieces of large piping were not returned to Linda in time for her to place them back in inventory to be counted.

In order to cover her own tracks Linda called upon one of her fellow warehouse managers at a location three states over and asked for 50 pieces of large piping be shipped to her location the next day. Once Linda received the inventory she placed the items in her inventory, hid the transfer paperwork and when inventory was counted her inventory was spot on. The auditors filed a "no-exception" report and Linda was given a "great job" on her inventory control procedures. Once the auditors left Linda sent the inventory back to her fellow warehouse manager and all paperwork was destroyed on Linda's end.

1.) In your academic opinion do you feel that Linda has acted unethically? Why or why not?

2.)Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practices?

3.)What impact does this action have on the company and financial performances. Answer this question with your understanding of reporting inventory and sales on the financial statements.

Answer the questions after reading the scenario. At least two to three paragraphs of information is required.  

Explanation / Answer

1) Yes Linda acted unethically , since she was responsible for the inventory and she secretly gave inventory units to her brother and to cover her acts she ordered another bunch of units , placed them to tally the physical counts.

2) Auditors should and can do suprise physical checks in which case it would be hard to cover the acts ,Also There should be segregation of duty in purchasing , ordering , storage and receiving .Also there should be proper authorisation for taking out the inventories

3)the inventory will be a loss to company , the impact of this will be overstated closing inventory and hence income overstated.

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