PQR & company are the manufacturers of sophisticated consumer products. They have a system of getting certain work done by Job Workers. The costly raw material will be sent to the Job Worker through the company's tra

On going through the case, certain points arise viz. materials sent to job worker are costly and the company itself sends through its transport and brings back by their own transport and returned materials are accounted after deduction at 2% for wastages. It is said that it is their practice. As an auditor, we planned to have a casual discussion with the Stock Manager on the arrangement that is going on. He explained raw material being costly, it is transported to job worker considering the safety and that after approving the process, the same is brought back by the company itself by certain authorised transporters for safety purpose. On the challan prepared by Job worker while sending back the stock, he clarified that since other document prepared by the Quality controller after allowing 2% for wastage will be accounted as usual and challan of job worker will not be considered. Regarding the wastage, he said that much importance is not given to small things. We have decided to visit the place where the Job Work process is carried out to know the operation. He is doing the job for PQR Company only. On wastage and rejection, he said that earlier job was carried manually and some wastage or rejection had arisen but now the job is done by latest technology and very rarely wastage or rejection occurs. Now it is clear that there is no wastage and that the entire quantity was going back and therefore a deduction of 2% was unwarranted. To tackle the situation, we have taken the address of the transporters who bring back the materials. Questioning them and investigating further, the driver of the vehicle admitted that on instruction of stock manager, every time some quantity of the processed material was under dispatch from the Job worker to the factory, a part of it would be unloaded in the premises of the stock manager and the balance alone will be delivered in the office. With the facts ascertained, the Stock Manager was cornered who accepted that unknown to the management, he was selling the processed material and pocketing money. The Forensic Auditor has finally unearthed the fraud for management to take action.