Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae’s brother started his own drilling company and persuaded Rae to “loan” him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well-encountered problems and the pipe were still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. “Send me over 80 joints of 5-inch pipe tomorrow, and I’ll get them back to you ASAP,” said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a “no-exception” report.RequirementsIs there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?How would this kind of action affect the financial performance of the company?

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Asked Dec 18, 2019
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Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae’s brother started his own drilling company and persuaded Rae to “loan” him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well-encountered problems and the pipe were still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. “Send me over 80 joints of 5-inch pipe tomorrow, and I’ll get them back to you ASAP,” said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a “no-exception” report.

Requirements

  1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?
  2. How would this kind of action affect the financial performance of the company?
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1. Inventory Cost: Inventory cost includes shrinkage cost, taxation, insurance cost etc. It also includes the cost involved in holding money or keeping money in stock. The company can implement better controls over inventory to discourage fraudulent practices. Maintaining proper records for each unit of inventory taken off and added to the shelves will help in keeping track of inventory. In order to avoid future fraudulent practices, the auditors should make unscheduled audits. Therefore, the manager would not know when audits would occur and when to fix the number of inventory to match the number on the books.

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