Sally Knox worked as the parts manager for East River Automobiles, a local automobile dealership. Sally was very dedicated and never missed a day of work. Since East River was a small operation, she was the only employee in the parts department. Her duties consisted of ordering parts for stock and as needed for repairs, receiving the parts and checking them in, distributing them as needed to the shop or to customers for purchase, and keeping track of and taking the year-end inventory of parts. East River decided to expand and needed to secure additional financing. The local bank agreed to a loan contingent on an audit of the dealership. One requirement of the audit was to oversee the inventory count of both automobiles and parts on hand. Sally was clearly nervous, explaining that she had just inventoried all parts in the parts department. She supplied the auditors with a detailed list. The inventory showed parts on hand worth $225,000. The auditors decided they needed to verify a substantial part of the inventory. When the auditors began their counts, a pattern began to develop. Each type of part seemed to be one or two items short when the actual count was taken.
This raised more concern. Although Sally assured the auditors the parts were just misplaced, the auditors continued the count. After completing the count of parts on hand, the auditors could document only $155,000 of actual parts. Suddenly, Sally quit her job and moved to another state.
a. What do you suppose caused the discrepancy between the actual count and the count that Sally had supplied?
b. What procedures could be put into place to prevent this type of problem?

  • CreatedApril 20, 2015
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