1. You have been told in confidence that Armen Inc’s Warehouse manager had disab

Question

1. You have been told in confidence that Armen Inc’s Warehouse manager had disabled the warehouse surveillance system several months ago and had—along with several subordinates—been using a variety of plays to rip off company inventory. Although Armen was aware that its surveillance system had been down, it had previously attributed the problem to an equipment malfunction. You were also told that the warehouse manager had been colluding with one of Armen’s accounting personnel to manipulate the accounting records to conceal the theft. The seeming credibility of the whistleblower and the detail he provided were enough for Armen’s internal audit department to request a preliminary investigation into the matter. This investigation, which included a physical inventory count, revealed actual inventory on hand to be only $2.7 million---$300,000 less than the $3 million reported by the company’s perpetual system. Provide a report to the CFO about this incident.

Explanation / Answer

Dear CFO,

Subject: Malpractices in the warehouses and reporting of actual inventory

We came to uncover a massive theft and mismanagement of the warehouse being conducted by the warehouse staff in collusion with the accounting team. This has resulted in the losses for the company, ranging to an amount of $300,000. The reported inventory was $ 3 million, but on actual counting, we could only find an inventory of $2.7 million.

This was also due to the manipulation of the warehouse surveillance system, which added to this theft and mismanagement.

I would request you to please take a strong action against the employees and initiate a formal task force to study and report such misadventures.

Please also contact the required authorities so that they can take appropriate action.

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