Management of certain companies may encounter incidents of stocks losses due to misappropriation of assets by its employees, i.e. their employees stole the company’s stocks for personal benefit (i.e. personal usage/ personal profits after selling it out).
Let us discuss together on What Could Go Wrongs (“WCGW”) in the internal control system that may result in the entity exposure to the risk of fraud:
- stock take is not conducted on a regular basis (i.e. stock take on a half-yearly basis)
- quantities and movement of provision stocks / obsolete stocks are not kept tracked (note: these stocks usually carry scrap value, and might be misappropriated if there’s no proper record)
- physical stocks are not stored in safety area
- CCTVs not installed in warehouse
- ineffective procedure in updating inwards/outwards of stocks into stocks record
The list above is not exhaustive and it is for reference only
From management perspective, there are a few areas / procedures need to be carried out when they had experienced / encountered fraud with regard to their physical stocks:
- improve accountability of the employees by assigning different area of stocks of different employees
- impose penalty on all warehouse employees while there’s material stock differences ( e.g. penalty on warehouse employees if stock-take difference is greater than 0.5% of total stocks)
- employ strict security access to the warehouse
- install CCTV in the warehouse and perform random check on certain time slots
- security guard to perform check on employee’s bags before allowing the employees to leave the premises
- ensure that stock-take is conducted on a regular basis and any stock-take difference is investigated
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