You keep reviewing the financial statement but cannot seem to see where analysis is going wrong. It looks like inventory is getting larger and larger, but you know that you haven’t seen any growth in actual levels of inventory that financial statements seem to be indicating. You just finished a comprehensive audit of all the physical controls of inventory so it is doubtful that inventory is being stolen. Everything else in the financials appears fine. In fact, they seem to indicate that the company is improving in profitability.
For this week’s discussion, answer the following three questions:
• What might be a valid reason for the increase in inventory cost?
• Assuming that fraud is being committed, how could a fraud perpetrator commit this type of fraud?
• What could be done to prevent this type of fraud?
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