Four Basic Measures to Prevent Inventory Fraud

A

The correct answer is B. Proper documentation, segregation of duties, independent checks, and inventory control.

Let's break down each measure and explain how it helps prevent inventory fraud:

1. Proper documentation: Maintaining accurate and detailed records of inventory transactions is essential in preventing fraud. This includes recording incoming and outgoing inventory, tracking inventory levels, and documenting any adjustments or discrepancies. Proper documentation ensures transparency and accountability, making it easier to detect and investigate any irregularities.

2. Segregation of duties: This principle involves separating key tasks and responsibilities among different individuals to create a system of checks and balances. In the context of inventory management, segregation of duties ensures that no single employee has complete control over the entire inventory process. For example, one employee may be responsible for receiving and verifying incoming inventory, while another employee handles recording and reconciliation. By separating these roles, it becomes more difficult for one person to manipulate inventory records without detection.

3. Independent checks: Independent checks involve periodic reviews and audits conducted by individuals who are not directly involved in the inventory management process. These independent checks can be performed by internal or external auditors or supervisors from other departments. Their role is to verify the accuracy of inventory records, compare physical counts to recorded quantities, and investigate any discrepancies. Independent checks provide an objective assessment of the inventory control system and help identify potential fraud or errors.

4. Inventory control: Implementing effective inventory control measures is crucial in preventing fraud. This includes implementing security measures to protect the physical inventory, such as locks, surveillance systems, and restricted access areas. Additionally, inventory control involves implementing controls and procedures to monitor and track inventory movements, including regular physical counts, periodic reconciliation with documented records, and utilizing inventory management systems. By having proper controls in place, any unauthorized or fraudulent activity related to inventory can be promptly identified and addressed.

Option B (Proper documentation, segregation of duties, independent checks, and inventory control) encompasses all four basic measures necessary for preventing inventory fraud. These measures work together to create a robust system that reduces the risk of fraud and ensures the integrity of inventory records and processes.