Anna Chun was in charge of the returns department at The Luggage Company. She was responsible for evaluating returned merchandise. She sent merchandise that was reusable back to the warehouse, where it was restocked in inventory. Chun was also responsible for taking the merchandise that she determined to be defective to the city dump for disposal. She had agreed to buy a friend a tax planning program at a discount through her contacts at work.
That is when the idea came to her. She could simply classify one of the reusable returns as defective and bring it home instead of taking it to the dump. She did so and made a quick $150. She was happy, and her friend was ecstatic; he was able to buy a $400 software package for only $150. He told his friends about the deal, and soon Chun had a regular set of customers. She was caught when a retail store owner complained to the marketing manager that his pricing strategy was being undercut by The Luggage Company’s direct sales to the public. The marketing manager was suspicious because The Luggage Company had no direct marketing program. When the outside sales were ultimately traced back to Chun, the company discovered that it had lost over $10,000 in sales revenue because of her criminal activity.
Identify an internal control procedure that could have prevented the company’s losses. Explain how the procedure would have stopped the embezzlement.