Makhana Pesticides Ltd. is engaged in manufacture and distribution of pesticides, other ancillary products and has a turnover of ₹ 1,000 Crores. The Company has branches across multiple locations and the stocks are store
CS Professional · Forensic Audit · PYQS · December 2021
Makhana Pesticides Ltd. is engaged in manufacture and distribution of pesticides, other ancillary products and has a turnover of ₹ 1,000 Crores. The Company has branches across multiple locations and the stocks are stored and distributed though these locations. The Management of the Company noticed that in few of the branches the write off in stocks was higher. The internal auditor was asked to cover in his scope these aspects and report to the Board, his findings, if any. However, the internal auditor reported that there were no material exceptions and some quantity of stock was becoming obsolete due to weather conditions and was written off. However, the Management was not satisfied with the internal auditor's response, and so it appointed Amrut for an investigation. Amrut went to those branches for detailed investigation and also tried to use data analytics tools to understand the movement of stocks and deliveries. He noted that the stocks worth ₹ 5 Lakhs were pilfered and sold to small farmers in small quantities by the junior staff there. He got to know of this when he overheard a labourer discussing with a local farmer. However, there was no documentation which suggested the involvement of the Branch Manager. The Management issued a Memo to the Branch Manager, to which he agreed to strengthen the internal controls around the storage of inventory and gave explanation to the Management. In this background, answer the following: Outline the line of investigation by the forensic auditor.
Answer & Explanation:
The following is the outline of the investigation process which can be carried out by the forensic auditor: Obtain the details of stock movement in the branch. Scrutinise in detail the quantity of stocks being received/sold and the movement thereof. Verify the system generated report of the quantities being received and sold including internal branch transfers etc. Collect the system based reports and see which product/stock indicate pilferages and write offs. Interview the security guard and the stock in charge to get an understanding about the process. Perform surprise checks to see if the stock quantities match with the records maintained. Verify the security registers to know, whether the movement of the personnel into stock storage/godown premises. Verify whether background checks were done for all the personnel employed in the branch including the contractors/labourers. Perform data analytics to identify if any particular stock was being pilfered. Also identify if the stocks are being moved in odd timings on holidays, etc.
Topics: Forensic Audit Investigation
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