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You were asked to investigate extreme high, unexplained merchandise shortages at a department store chain. You...

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Accounting

You were asked to investigate extreme high, unexplainedmerchandise shortages at a department store chain. You found thefollowing:

  1. The receiving department supervisor owns and operates aboutique carrying many of the same labels as the chain store. Thegeneral manager is unaware of the ownership interest.
  2. The receiving supervisor signs receiving reports showing thatthe total quantity shipped by a supplier was received and thendiverts 5% to 10 % of each shipment to the boutique.
  3. The store is unaware of the short shipments because thereceiving report accompanying the merchandise to the sales areasshows that everything was received.
  4. Accounts Payable paid vendors for the total quantity shown onthe receiving report.
  5. Based on the receiving department supervisor’s instructions,quantities on the receiving reports were not counted by salespersonnel.

Required:

Classify each of the five situations as a fraudulent act, afraud symptom, an internal control weakness, or an event unrelatedto the investigation. Justify your answers. (CIA Examination,adapted)

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