During the audit of purchasing and inventory operations, an internal auditor discovers that significant quantities of purchased materials are neither in stock nor accounted for. Stock records, controlled by the warehouse supervisor, do not reflect shortages and the inventory reports appear to have been altered. The internal auditor suspects that the warehouse supervisor altered the reports, since he has the greatest opportunity to remove materials for personal gain.

The auditor notifies the department manager and together they confront the suspected supervisor. The supervisor offers no explanation for the shortages and denies any wrongdoing. The department manager immediately suspends the supervisor, pending further investigation, and informs the warehouse employees. Since no adequate explanation for the shortages was obtained, the auditor contacts security for assistance.

Required: 

List actions the auditor and the department manager might take that could hinder a successful investigation and could subject the company to legal proceedings.

Briefly discuss the possible adverse effect of each action.