- Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
- Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
- Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
- As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
James T. Foggie says
1.Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The fraud triangle consists of opportunity, incentive/pressure and rationalization. The opportunity existed in that there were no controls in place to physically ensure that inventory of assets were tracked. The author of the song states that no one would miss the stolen items as long as he methodically removed items over an extended period of time. He describes how he removed small items; but even admits to removing items as large an engine or transmission unit. It is safe to save there were NO effective control in the areas of inventory physical or cycle counting. In the case of this ‘dishonest’ employee, there did not seem to be much pressure to commit the theft; the main incentive was desire to possess a Cadillac! Lastly, the rationale stated by the employee was that the large company would not ‘miss’ the materials stolen, insinuating the lost of assets would not significantly impact the company of its size.
Tamekia P. says
Good catch James. I wasn’t thinking about the fact that the inventory wasn’t being captured. I was focused on the fact that there was no consequence for stealing the parts. It is hard to have a consequence for stealing a part that no ones is missing.
James T. Foggie says
2.Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
1 – I would implement physical security (cameras and guards) controls to monitor and track all corporate assets that leave the facility. All materials or items that have a valid reason for leaving the premises will require sign-off by proper authorities. The tracking documentation must accurately describe the equipment
and list the quantity.
2 – Another area I would focus on would be inventory control. Inventory physical and cycle counting would be implemented to routinely identify gaps in inventory volumes. By routinely counting inventory, the plant would 1) have a method to isolate and identify where anomalies exists; and 2) discourage would-be thieves.
Xiaozhou Yu says
Hi, James
Thanks for sharing your thoughts. The physical check is a direct one, camera is popular applied in all business, no matter which process. Also the sign-off is a good idea and have a SOD applied. I would also add physical check before employees leave from work, it’s a little harsh but really work.
Pascal Allison says
Great point James, the physical security. I thought about the cost associated with the physical security, but again it goes down to accepting risks and mitigating risks. If the cost associated with providing the physical security is greater than the possible loss, physical is could be a loss. If the value of the parts is greater than the physical security then physical is a plus.
James T. Foggie says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
When a company expands its business to include global transactions that require shipping, many of the procedures and controls are those of a domestic shipping transaction. However, global shipping transactions do pose some different control challenges. For example, companies will have to ensure there are controls in place to ensure OTC processes include ‘movement of goods’ adhere to international rules relating to perishable goods. The same applies for rules relating to the movement of plants and animals. Controls need to be in place to ensure proper documentation has been created, reviewed, and approved. Lastly, controls should be in place to ensure documents are reviewed at checkpoints during the shipping process.
Two additional controls that need to be considered when shipping internationally are 1) controls to ensure proper packaging of goods (as per any international standards); and 2) controls to ensure accurate estimation of delivery dates of shipments. Companies need to take every step to ensure fines and delays in shipments do not occur within normal international OTC processes; fines and delays are counterproductive to the business objectives. Starting from the OTC order entry process (Available to Promise (ATP)), controls should be in place to ensure that all global shipping challenges are accounted for when committing to deliver dates of shipments. Missed delivery dates directly impact the company reputation and profitability of global shipping transactions.
James T. Foggie says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Two less obvious inventory controls that come to mind are (1) self-checkout weight sensor at the supermarkets; and (2) individual lock packages (e.g. printer cartridges at Staples). In both cases I feel these control measures are effective. At the supermarket self-checkout, customers are conditioned to adhere to the process in place that requires scanning of barcodes before placing items into bags located near the scanning window. If the sensor detects a change in total weight on the sensor, a message is issued that it has been detected that an un-scanned item is in the bag. I believe if excessive un-scanned items are detected, the system will pause the process and require assistance of a store employee to continue the checkout process.
In the case of the secured packaging incased around inkjet printer cartridges, it is more obvious that physical controls are in place for these items. The need for this security control is probably due to the cost of items, and frequency of the occurrence of theft. These cases are a very cost-effective, re-usable method for securing a large quantity of items without utilizing a locked case (which requires employee involvement).
Nathan A. Van Cleave says
James, good thoughts on the pressure-sensitive bagging areas of the self-checkout; I find them to be a bit annoying, but very effective in ensuring all items are scanned.
You pointed out another, super annoying security control, individual locked packages. But again, very effective in preventing theft. They always make me think of that Dollar Shave Club commercial where they make fun of the alarm going off when the guy just wants to peak behind the “secure door” to access razor blades.
Tamekia P. says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The environment was favorable to fraud because the employee felt that Ford would not miss a piece (pieces seemed plentiful). In addition, there didn’t appear to be much of a consequence from stealing from the assembly line.
Derrick A. Gyamfi says
Tameika,
Great point on the non-existence of consequences for stealing from the assembly line. I didn’t think of this when making my initial point but I think if there was some type of consequence for stealing from the assembly line – Johnny Cash would not have so easily rationalized to do so. Moreover, if there were consequences, they might have not been stressed enough or communicated effectively to employees. Thanks for sharing!
Tamekia P. says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
Metal detectors leaving the building would prevent the thefts from going undetected. If the metal detector caused an unintended hassle / embarrassment for employees then there would be limited desire to take the parts.
Tamekia P. says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
The foreign exchange and shipping price controls would need to be different in a purely domestic vs international company. An analytic based on region would be useful as the currencies change, the variance in FX would need to be examined. In addition, it is significantly more expensive to ship a package outside of the country. In addition to the cost of shipping, duties would also need to be calculated.
Mahugnon B. Sohou says
Hi Tamekia
Great point about the change in currencies. I mentioned in my post the difference in pricing due to customs regulations and laws, but I didn’t think of the currencies also being a factor that could influence the difference in prices. good point
Tamekia P. says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Orders of inventory according to size at specific amounts. If inventory is ordered according to known trends then employees in the stockroom might be easily able to investigate variances, particularly in less popular sizes.
Nathan A. Van Cleave says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The “One Piece at a Time” video scenario dives into the three aspects of the fraud triangle; opportunity, pressure, and rationalization. The environment seemed favorable to fraud as it allowed the individual the opportunity to take his, presumably very large lunch bag and steal parts day by day, year by year until he was able to put entire car together. The factory lacked controls to ensure individuals could take parts without being detected; whether physical or accounting methods.
Opportunity
Through his job as an assembly line worker, individual has access to a seemingly endless number and types of Cadillac parts.
Pressure
Because Cadillacs are a luxury automobile and viewed as a status symbol, the individual badly wants one.
Rationalization
GM is a huge company and wouldn’t miss a few parts here and there over many years.
Nathan A. Van Cleave says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
The controls that could be implemented to reduce the risks could include random bag checks, stronger inventory and accounting controls. With random bag searches, it could deter individuals from stealing parts or reduce the likelihood that something could be taken offsite through this method. Additionally, stronger inventory controls like keeping a count of parts taken to an assembly point matches what should have been installed on the cars through the line. Couple with the inventory keeping, accounting practices could identify theft through anomalies such as needing to order more of a particular part if the inventory indicates otherwise.
Mengqiao Liu says
Hi Nathan,
I am very interested in the answer that whether the employer has the authority to search employee’s bag. I did research on Google, some said the private employer generally has the right to search an employee’s purse or bag as long as there is a workplace policy in place. Others said clearly visible personal items cannot be searched, and employers cannot conduct a search if there is no reasonable ground for suspicion.
Nathan A. Van Cleave says
Hi Mengqiao,
I agree with the invasion of privacy aspects of bag searches. I couldn’t think of a better alternative when I was writing it. I have worked a wide range of jobs throughout my life and I have only been in one company that had a random bag search policy. This was a retail sporting goods chain and it was indeed written into the policy and signed when an employee was hired.
I only recall one time where there was strict adherence to the policy; and it was after they had done an inventory and there was significant loss/shrinkage. They did more “rigorous” searches where we emptied our contents out, they didn’t have the authority to rifle through the bag.
But usually, the search was like, “hey can you flip open your bag top and let me glance into it” type of search. Overall, I definitely do not agree with searches like that, I think others have mentioned better controls such as surveillance of common areas, and inventory controls like sensors or alarms.
Folake Stella Alabede says
And heres another thought Nathan, i hear people talk (boast actually) about how they go into stores for underwear (both men and women), they take the underwear and boxers ( they mostly dont have ink tags) into the fitting room and put them on their person, as many as 5- 10 pieces, they put this on under their clothes and then stroll out of the store. I hear people talk about this, and its not like these people cannot afford these items, its just the thrill of being able to successfully get away with it.
So my question is, what controls can be put in place to address this particular issue ? underwear/boxers etc can be as many as 5-10 in a pack, will they put ink tags on every single one ?? and they obviously cannot search a persons body for what he has on under his clothes as that will be the real invasion of privacy,
So for company’s that deal with these merchandise, what is the way forward ?
Tamekia P. says
Nathan, I like the idea of the bag searches as a deterrent from theft but I can see the points made by classmates about privacy concerns. I wonder what retailers do as there employees have access to remove price tags / censors and would be easily able to get away with merchandise.
Nathan A. Van Cleave says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Varying controls of domestic vs international companies would include import/export duties or taxes and customs processes. International companies would need to account for import/export taxes such as tariffs or regulations such as sanctions. They would all impact the pricing/cost, supply/demand of an international business.
Additionally, customs processes may impact or dictate how an international company packages, ships and stores it’s product prior to and while entering home and foreign countries. If the example of purely domestic company to mean, it sources, manufactures, ships and receives materials, products and services, then it generally would not be directly concerned with those types of controls.
Xiaozhou Yu says
Hi, Nathan
Thanks for the clarification. I would say international OTC process will be hard to apply control when customs involved, like you explained example activities. I dont think any business is able to apply controls over it, since it is government operated, and under a separate system.
Nathan A. Van Cleave says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Surveillance systems are a common inventory control measure that consumers encounter and generally a good deterrent to prevent and detect theft. Another less obvious inventory control measure that I’ve encountered as a consumer is the checkout scanner that sits below the counter to detect any items on the lower rack of the shopping cart. I didn’t even realize it was there until I forgot that I had a flat of bottled water; it alerted the cashier when they totaled my items. Wondering if it would detect one of my kids if they decided to stowaway down there.
Mengqiao Liu says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The pressure was the singer knows that he will never be able to afford Cadillacs on his own. This is the personal financial pressure, the motivation behind the crime. The singer and a co-worker decide to ‘steal’ a Cadillac by way of using their assembly line jobs to obtain the parts via series of many small actions. The opportunity to commit fraud is the means by which the individual will defraud the organization. The singer and his co-worker can abuse their position to solve the problem: He takes the small parts home hidden in his unusually large lunch box; larger parts are smuggled out in his co-worker’s motorhome. The singer needs to accumulate the process of all the necessary parts which turns out to take at least 25 years in order to rationalize the theft.
Mengqiao Liu says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
I would implement security cameras control to prevent employee theft. Security cameras provide a video record of all the activity that occurs in the warehouse and on the production line. When a discrepancy occurs between the recorded level of inventory and the actual quantity, management can review the video footage looking for physical inventory movement and comparing that movement to the recorded inventory movement. In this scenario, the singer and his co-work can steal small parts of Cadillacs, but they cannot steal bigger parts such as wheel hubs, car doors, engine, etc. under the security cameras.
Mengqiao Liu says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
A purely domestic company may only have one type of transportation mean to ship the goods, but an international company may use more than one type of transportation mean to ship the goods. For different modes of transportation, the controls are different. A purely domestic company may only use land transport mode, so the controls focus on tracking the orders. An international company not only needs to focus the controls on track but also needs to ensure the international transportation rules and customs taxes and requirements. At the same time, the international company should ensure the security of goods when transfer from a transportation to another transportation.
Mengqiao Liu says
1. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
H&M manufactures 80% of its retail inventory in advance and introduces the remaining 20% based on the most current market trends. These manufacturing strategies help the company to reduce lead times, keeping them at the top of their inventory control game. This is obviously effective.
On the other side, analysts have attributed Walmart’s problems to mismanaged inventory. In fact, one of the most important metrics for retailers is inventory turns – or the rate at which a retailer will cycle through its entire inventory. The faster the turn, the lower the cost.
Reference: https://www.tradegecko.com/learning-center/what-is-inventory-control
https://www.tradegecko.com/blog/out-of-stock-problems-and-solutions-walmart-nike-bestbuy-case-studies
Folake Stella Alabede says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud Triangle identifies the 3 points of the fraud triangle as Incentive/Pressure, Rationalization and opportunity.
The Rationalization for the singer was probably “GM is rich, they will never miss the parts I’m taking, GM wouldn’t miss just one little piece, Especially if I strung it out over several years, they wont even notice its gone,- a few nuts and bolts, some shocks, head lights etc. . (I wonder what the rationalization would be for the fuel pump, trunk, transmission and the engine ??? These are probably big pieces and would most likely be expensive too).
The Pressure would be : “ I need this car, I would never be able to afford this car, what are the odds that I work in a car company – this might be a one time opportunity I might never have again’
The Opportunity would be that the singer sees a control weakness, he probably accidentally took a piece of equipment home one day and nobody stopped him or noticed.
This environment was favorable to fraud because internal control was weak/non existent. As I read in an article “Internal control procedures can particularly diminish the “opportunity” point of the Fraud Triangle”. There was such a lack of internal control as regards to theft so much that, the singer and his friends were able to “sneak out” the big stuff in his buddy’s mobile home. How do you sneak out a car trunk, tires, engine, transmission etc? without anybody asking questions ? How did inventory handle the “loss” of the engine/trunk/tires etc ? This can all be possible due to lack of internal control proceedures
James T. Foggie says
Stella,
You bring up points all IT Audit students are asking ourselves :). If the singer stopped at embezzling simply nuts and bolts, we might feel this type of fraud is hard to detect on a regular basis. However, when the singer continues to describe the stealing of much larger items, it becomes obvious that inventory controls and physical security controls were non-existent. Although the song seem to exaggerate the point, it is an excellent illustration of what can happen in the absence of controls!
Folake Stella Alabede says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk
As the operations manager, some key controls to implement would be site security/perimeter controls as well as regular equipment inventory.
Site security/perimeter controls would deter any obvious theft like the ‘One Piece at a Time’ video scenario depicts. While it might still be easy to “sneak out” little items like nuts and bolts, it would be harder to “sneak out” big stuff like engines etc .
Also, most times, employees do not park inside the automobile building itself, and in cases where they do, most of these employees are “required” to open their trunk/boot on the way back out of the building for a “security guard” to check
Also, Equipment inventory lets you know when equipment or car parts are “missing”. So a regular inventory of parts and equipment would alert the operations manager to missing parts.
Folake Stella Alabede says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
One I can think of is the check out exit doors of places like Costco, B.j’s etc., where they have guards at the door that check your receipt and are supposed to reconcile this receipt with the items in your cart, probably to check that you don’t have items in the cart that wasn’t paid for. I think this is very ineffective as the error of omission can very easily be committed, especially for a security guard who is tired or nonchalant. It does address for big items like TV’s, Fridge, computers etc, but what about the “not so big” items as well? Its happened like twice where I get home and I see that the same item I bought 2 qty of was only scanned once.
Also, stores like jcp and Macys all have alarm systems that ring when people leave the store with unpaid items, sometimes people go through the exit and the alarm keeps wailing, and these people don’t stop, they just keep going. What is the point of the alarm system to detect unpaid merchandise, If there is no one (Security guard) at the exit point to check people when the alarm goes off? i think this is also ineffective as the objective/reason for the control measure is not being achieved.
Nathan A. Van Cleave says
Hey Stella,
Good perspective on the receipt checkers at BJs, Costco and Walmart. I think you’re right that it’s not great at completely reconciling the entire purchase, but they do probably “train” them to spot big ticket items you pointed; TV’s, computers, etc.
With those stupid alarms at the mall stores or even like Home Depot; so many times they just ignore it and tell you to go ahead. LOL, I think from a opportunity standpoint, if a person knows that employees/management at a store react that way when an alarm goes off, they might think, “hey, this is a good place to steal stuff, because they don’t even care if something is beebing!” You’re right, what’s the point then?!
Mahugnon B. Sohou says
Hey Stella,
That is the perfect exemple, Costco and Macys have some of the control measure we don’t even think of. You are right on about those measures not being very effective, because they rely solely on the human factor and humans can make mistakes. I had a similar argument in my post as well.
Heiang Cheung says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud Triangle consists of perceived opportunity, incentive or pressure and rationalization. In the song, he definitely perceived that he could get away with stealing the parts for the car in his lunchbox. I’m guessing that there weren’t any controls in place to check people belonging when they left the factory. Also, notice to care how big his lunchbox was. The incentive or pressure is social status he wants to show off and drive through the town. The rationalization of this is that GM wouldn’t even notice this especially if he does it over 7 years. He also probably thought he deserved it.
James T. Foggie says
Heiang,
Yes, often employees of companies believe (or at least convinces themselves) they are entitled to “perks” even if the “perks” are unauthorized. I have seen employee abuse of inventory even by fast food employees. In the case of these employees, they often feel underpaid for the volume of work being performed. Often, these employees see no problem in consuming or giving away food that is not authorized. If a particular store does not have proper controls in place, employees will have a path to giving away food which impacts the store’s profits.
Heiang Cheung says
Hey James,
Yeah, I agree, I also think people steal at low paying jobs more often is because they have nothing to lose. If they were paid more I think it’s actually a deterrent from stealing because I used to work in retail and notice this first hand. It’s a lot easier finding another minimum wage job than to find another job paying 15.00 an hour. I mean they might still steal but it an incentive not to because they have more to lose.
Mahugnon B. Sohou says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
In the ‘One Piece at a Time’ The opportunity for fraud was that there were no controls to track inventory of assets. The author of the song describes how he was removing small but sometimes large items. For the case of the ‘dishonest’ employee, there was no real pressure for fraud, but rather a personal gain/ incentive, the desire to own a luxury automobile as a status symbol. His rational was that the company is a huge company and a few stolen parts here and there would be unsignificant to the company.
Heiang Cheung says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
As an operation manager I would probably implement put in place couple security cameras around the plant, so they could see what their employees are doing. Also, I would have some metal detector/ security guards to make sure people are not walking out with parts and bringing fenders out the back door. Having cameras also is a deterrent because if the employees see there are cameras they are less likely to steal or do anything inappropriate. The next thing I would implement would be some inventory controls because there should be no way that a person could walk out with all the parts for a car and nobody notice especially big items like engines. I get nut and bolt would be hard to track but fenders, engines, tires, and motors should probably be tagged and should be matched with each car they put out.
Robert Conard says
Heiang, great point about the security cameras. Personally I didn’t consider this control and it would in fact be a valuable deterrent against theft at the facility.
As far as the inventory controls, there are some good accounting methods I would consider as far an perhaps implementing an internal audit team. Combined with a system for physical checks, the team could help to identify inconsistencies in reports. Of course, the organization should consider the integrity of the audit team and incentivize them to act honestly.
Mahugnon B. Sohou says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
As the operations manager, some key controls I would implement would be site security as well as increased inventory controls
I would make sure to take measures to increase physical security like cameras, card keys and security guard to monitor and keep track and who goes in and out of the facility and their activities within the facility.
I would also implement a stronger inventory control. I would implement Inventory physical counts to identify any gaps in inventory volumes or any missing item. This would discourage anyone with the intent of stealing.
Most times, employees are leaving the facility they will be required to open their bag (randomly) for a “security guard” to check.
Nauman Shah says
1: The “One Piece at a Time” video delves into the 3 sides of a fraud triangle; opportunity, pressure and rationalization. The environment at this company was favorable, as this individual was allowed to take his large bag to the assembly line and steal parts pretty regularly. This person also had access to pretty much every part on the assembly line, which also shows a control failure, as one person should not have access to so many parts and areas of the assembly line.
Nauman Shah says
2: One important inventory control is reconciling the beginning inventory with the ending inventory. Ending inventory should equal the beginning inventory plus the parts used that day. Any discrepancies should be investigated. To aid in the investigation process, security cameras should be installed through out the assembly line, so that that the manager can review the video footage later, in case of inventory shrinkage.
Derrick A. Gyamfi says
Nauman,
I like the idea of utilizing inventory control through the reconciliation of the beginning and ending inventory. However, from an accounting & auditing coupled with the concept of materiality – one or two missing gears or piece will be below materiality level and hence I doubt it will get picked up or “matter” in the auditing/reconciliation process.
Nauman Shah says
3: In case of an international company, that ships products to other countries, several additional controls would have to be implemented, as the company would have to comply with the customs, tariffs and packaging policies of the foreign country. The cost of shipping would also be greater and a greater level of insurance might be required to ship goods from one country to another.
Nauman Shah says
4: Manufacturing companies also use the Just in Time (JIT) inventory system, where inventory is received in small amounts and at more frequent intervals to minimize costs related with inventory such as insurance and warehouse space. This also reduces the chances of theft, as there is a limited amount of inventory sitting on the floor, so it’s easier to manage. This method requires producers to forecast demand more accurately. Retailers use different methods to control inventory levels, some of the modern controls include RFID tags attached to products that sends signals to an inventory system, when inventory levels go below a certain threshold.
Heiang Cheung says
Hi Nauman,
Implementing Just in Time inventory system is actually really smart. This would help with theft because the part that comes in would be put together immediately and if someone steals a part they would notice it immediately.
Mahugnon B. Sohou says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Controls of domestic vs international companies would take into account import/export processes. Because a domestic company would only have one way to ship the goods like the use of land transport mode, but an international company may use various different ways of shipping their goods. Therefore the controls of an International companies would need to account for import/export processes and related fees like custom taxes, tariffs, which would impact the cost, and therefore the supply/demand of an international business. customs processes may also affect the way an international company process its shipping.
Mahugnon B. Sohou says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
One less obvious inventory control measure for instance would be the guards who check out your receipt and reconcile it with the items in your cart at the exit at Costco after you purchase, to make sure all items that leave their facility are paid for. This measure is more effective for big items but not so much for smaller items. I also think of clothing stores like H&M, Macys, century 21 etc… They detector at the exit of the stores that makes an alarm go off whenever someone leave the facility with an Item that still has a tag on it. However this measure is only effective if there is someone at the door (a security guard) to check the bags of the customers whenever an alarm goes off. Otherwise people go through the detector, the alrm goes off but they keep going and nobody reacts.
Heiang Cheung says
I agree that they are less effective if they have no security guard stopping you at the exit but it’s still effective because even if someone sees there is an alarm system in place they might think twice about stealing compared to having no alarm system.
Folake Stella Alabede says
Yes Heiang, but i think the alarm system is non effective and would not deter anyone that wants to steal knowing that there would be nobody to stop them even if the alarm sounds. And even sometimes, the security would be the one to tell you to “keep going, its probably nothing”
For me, if the alarm sounds anywhere i go,i will stop and check my purchases, because there was a time my friends and i drove like 40 mins to a mall, when we were leaving, the alarm sounded, and the security guy at the door told us to keep going, LOL, i get home and i saw that something i paid for still had the ink tag. i was very pissed, because i had to set aside another day to drive 40 minutes in either direction to take the item back to the store for them to remove the ink tag.
Folake Stella Alabede says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
The difference in the controls of a purely domestic company vs. an international company varies and largely depends on the item/merchandise being shipped. Looking at a major shipping line like FedEx, international shipment would require controls that would take into consideration laws, commercial invoice, bill of lading etc. Also, internationally shipment would obviously be costlier. Basic objectives when talking about controls around international shipment is to ensure products are delivered to their destination safely/undamaged, within stipulated timelines and in a costly manner.
Heiang Cheung says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
I think there would be many differences in controls for an international company. Take for example Apple you have to deal with the different regulation that is in place for each country and make sure you each country guideline. There is also a currency exchange rate for each country. You would have to make sure the exchange rates are accurate for each country because a currency could drop drastically, and you would have to make sure you price your inventory accurately. Also, there could be a tariff on certain items so if you’re a company the sell different thing one thing could be taxed, and the other thing might not be. If you’re shipping internationally you would have to deal with different delivery companies, so you might have more risk of lost packages/ damage product because it is traveling a longer distance.
Heiang Cheung says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
I used to work in retail, so I see many different controls like cameras/ security guards to watch over the staff and customer. Also, RFID tags for item that are high price but those are probably obvious. The one thing they told us is having great customer service is somewhat of an inventory control. For example, if you see workers walking around and one come up to you to ask if you need any help the person is less likely to steal especially if an employee is nearby. Also, having a good company culture and making sure employees feel good about working at the company is another control because if a person feel good about someone they are less likely to steal from them.
Scott Radaszkiewicz says
Question 1:Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The fraud triangle consists of three components: Pressure, Opportunity, and Rationalization. In the One Piece at a Time video, Johnny Cash steals a car by taking home pieces of it at a time. The pressure here for Johnny is that he worked on the assembly line, watching those beautiful cars roll by each day. He wanted one, but obviously didn’t have the means to procure one. So, he developed a plan to get one, and take a piece home each day, in his lunch box or his friends RV. The opportunity existed because Johnny had access to the parts, and there was obviously no inventory control to account for missing parts. Johnny rationalized taking the parts home because he really wanted a Cadillac, and GM surely wouldn’t miss one part each day, which they didn’t.
Scott Radaszkiewicz says
Question 2: Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
The key control is inventory management. First off, each item in inventory should be accounted for. So, if one piece is missing, an investigation could deduce what happened. Was it stolen? Was it broken and removed from inventory. Inventory control is key. Along with this control, access to inventory would be by job function. In the song, seems like Johnny had access to every component of the car. If he’s working on an assembly line, then Johnny should only have access to those parts that he works with. If Johnny installs tires, he would only have access to tires, rims, lug nuts, etc.
Scott Radaszkiewicz says
Question 3: Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Well, thinking about this, I would think that one of the biggest controls that you would have to account for in an international company is compliance with other countries laws and regulations. For instance, China restricts the shipment of many items. One example currently not allowed to be shipped to China is digital cameras. So, controls in place in the shipping department to avoid shipping goods that might be prohibited in another country can avoid issues.
Scott Radaszkiewicz says
Question 4: As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
I think one of the most interesting stories about inventory controls is surveillance cameras in stores. I had a good friend who worked in security management at a company, Target, to be exact. This story is from a few years back, so some of this might have changed. Target has surveillance cameras in all of the stores. My friend relayed that only about one third of the cameras were even operational, the others were just empty domes, to deter theft. And of the installed cameras in the store, a majority was installed on the cash registers and the stock areas to monitor employees for theft. The company rated employee theft as the highest risk factor for fraud, and rightly so. He explained that one person might come into the store and steal $50-$200 worth of clothes or goods. But an employee could do much more damage. They could steal cases of product from the warehouse, or a common fraud, not scan high valued items at the register for friends and family. Thus goods roll out the door unpaid for.
Heiang Cheung says
Hey Scott,
I used to work at a supermarket and it was the same. They created a program that would incentivize employees that would tell on another employee who is stealing.
Robert Conard says
1. The fraud triangle consists of opportunity, incentive, and rationalization. In the case of the ‘One Piece at a Time’ video, the fraudulent employee took advantage of a process lacking physical check on inventory. By gradually removing items from the reports, the employee felt it was an undiscoverable opportunity. Incentive wise, the employee wanted to gather parts for a personal use Cadillac. Finally, he rationalized his actions by saying the company would not notice the missing parts, therefore there would be no considerable loss.
The environment enabled fraud because of the lack of controls. While it is not generally expected employees will commit theft against the organization, there must be planning in place to ensure that no such actions take place. It is not ideal to limit employee based on distrust, but in cases like this, it is clear why such controls are necessary.
Robert Conard says
2. I think the two controls I would implement would directly relate to the accounting and physical aspects of inventorying. To start, using frequent checks on the inflow and outflow of inventory can give detailed reports into what should currently be available. Doing this correctly would mean any missing parts could be considered improperly used/stolen. Another control could include a check on employees before leaving the facility. This may be more effective for larger parts that are stolen, however, it would be difficult to make this perfectly accurate. Neither control would ensure the complete protection of inventory, however the controls in place may be enough to prevent fraudulent acts.
Akiyah Baugh says
Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The environment was favorable for fraud because of failed controls to deter employees from committing theft. I don’t believe the individual felt “pressured” to take parts to in order to build a Cadillac. Unless the pressure was his wanting a Cadillac that he could not afford. He definitely had the “opportunity” if he managed to steal all the parts needed to build a vehicle. He also “rationalized” that fact that he worked the assembly line every day helping build cars for someone else and he (inferred) could not afford to buy one himself. He didn’t think Cadillac would miss the parts. Which means he didn’t think his taking the parts would have any negative effect on the company.
Akiyah Baugh says
Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
I would implement a control where employees only have access to the part(s) that they are responsible for on the assembly line. If it wouldn’t slow down the assembly line I would also have the employees sign off on the number of “parts/engines” that they were responsible for daily at the start of their shift. (e.g They need 20 engines, if 20 engines were not installed that day they should only need 16 the next or they need to return the 4 to inventory at the end of the day. I would also implement inventory count controls. If an employee knows that someone will be “checking” behind him/her they may be less inclined to steal.
Robert Conard says
4. Some less obvious inventory controls include: shelf counts, security cameras, and simply tracking the inflows and outflows of materials. Some of these are less obvious than others, but all are applicable to both consumer and facility uses.
Akiyah Baugh says
As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
1- I believe greeting the customer may be a less obvious inventory control measure. Making the customer aware of your presence may make them think twice before committing theft.
2- Offering incentives for a job well done, and offering discounts when possible to employees. This may make them feel appreciated and deter them from wanting to risk losing their job by stealing from the company.
Akiyah Baugh says
Hi Robert,
What about non-working security cameras? How effective do you think they are to deterring theft? Are they a less obvious deterrent? Is something better than nothing?
Akiyah Baugh says
Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
1 – International companies have to worried about customs , therefore companies need to ensure that all products being shipped adhere to strict customs guidelines such as value, weight, and products allowed.
2- Properly classifying your products. Obtaining proper export licenses to export products
3- Ensuring that all shipping addresses and documents are correct. It can sometimes be difficult to track an international shipment and can result in lost revenue if the address is incorrect.
Xiaozhou Yu says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
Analyzing the scenario using the fraud triangle from three perspective: pressure, opportunity and rationale.
Pressure indicates the motivation of the fraud, in this case it is majorly financial pressure. The guy wanted a car but couldn’t afford it. Opportunity refers to the chance or method to commit the fraud. The guy worked for the automobile manufacture and have direct expose to those automobile parts, and as he mentioned, put those parts into the large lunch box and people won’t notice it. And lastly, the rationale, which refers to he personal justification of dishonest actions. For the guy’s point of view, it was not a big deal, and never considered himself a thief, the company wouldn’t miss just one little piece.
Xiaozhou Yu says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
The number of assembling parts should have detailed record and check every business day. How many parts are there and how may products can be produced using those parts, having those numbers defined, the chance of lost or stolen parts can be low.
Also, it is essential to have clear SOD in the production process, have multiple employee responsible for different phases of production as well as the quantity and quality assurance will help lower the chance of the theft.
Xiaozhou Yu says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Doing the business with domestic customer would be easier to apply controls, as well as less controls, since all actor involved are local based, standard and uniform controls can apply over the whole process, and easy to maintain and monitor.
When have business globally, customs issues and tariffs should be in a key consider, since they directly have impact on the revenue and process efficiency. In this case, controls will be harder to apply when governmental department get involved, and regional differences have impact on the effectiveness over controls. Time zones also make the whole process hard to monitor and communicate.
Xiaozhou Yu says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
I think inventory controls mainly works on avoiding theft and maintain the productivity.
Retail stores as well as other type of commercial stores always have camera. Not only aim to monitor the behavior of customers and employees but also to apply inventory control and avoid potential theft.
They also have RFID tags on products, so when they get those products, just scan to record the inventory and sales, as long as the amount match everything works well. RFID tags also avoid theft when customer bring unpaid items and tried to get out of the store, alarm will start.
Derrick A. Gyamfi says
With reference to the ACFE , the fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud. It consists of three components which, together, lead to fraudulent behavior:
1. Perceived unshareable financial need (Pressure)
2. Perceived opportunity
3. Rationalization
With reference to the One Piece at a Time video the environment was favorable for fraud because;
Pressure – “He would watch them beauties roll by and sometimes he would hang his head and cry”, “He wanted one that was long and black”
Opportunity – He was an employee on the assembly line and had access to the parts of the Cadillac.
Rationalization – He would sneak one piece at a time and it will not be noticed.
Derrick A. Gyamfi says
If I was the operations manager responsible the for the assembly line, I will implement controls to address the risk of a possible theft of inventory and materials.
These controls include:
– A Products & Materials tracking system – This will keep track of the inventory of gears, bolts, transmissions, and parts that go into making the car.
– Security Check – This will make sure all employees are going through some type of metal detector or check in point when entering and exiting the production facility.
Derrick A. Gyamfi says
One less obvious inventory control measure could be employee inquiries while customers shop for goods. Utilizing employees on the floor would make customers less inclined to attempt to steal goods. Another less obvious control measure could be the use of barcodes on items that would alert the system when customers attempt to leave without buying items.
Derrick A. Gyamfi says
A purely domestic company can easily utilize the control of having physical eyes and hands watching over the goods being shipped and distributed. The same could not be said for an international company, where controls would have to be mainlytechnology-based, counting on the system’s data to keep track of inventory.
Pascal Allison says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The video or story violates all three angles of the fraud triangle. The fraud triangle consists of:
A. Confidentiality – prevents the unauthorized use or disclosure of information, ensuring that only those who are authorized to access information can do so.
If he was putting wheels on, or whatever his job description was he should not have had exclusive assess to other parts.
B. Integrity – Integrity safeguards the accuracy and completeness of information and processing methods. It ensures that
• Unauthorized users or processes don’t make modifications to data;
• Authorized users or processes don’t make unauthorized modifications to data;
• Data is internally and externally consistent, meaning a given input produces an expected output; and
Monitoring was lacking. If he sneaked part out of the log, that modification or reduction in inventory. That should have been picked up.
Availability – Availability ensures that authorized users have reliable and timely access to information, and associated systems and assets when needed. Availability is easily one of the most overlooked aspects of information security.
The video does not really say there was a shortage. If he was taking the parts for personal use, it is reasonable to deduce that there was some shortage went needed.
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
I would implore all three types of controls if the scenario could happen.
Preventive – segregation of duties (documentation, authorization, and stewardship will allow the handle by three different persons).
Detective – the will always be a reconciliation of inventory
Corrective – period review of control and updating lacking loopholes.
A tracking system to monitor deduction and addition and physical periodic check of all lockers, travel bags, and vehicles of staff.
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Order to Cash comes with risks, whether domestic or international. In my opinion, the most difference between the two will be payment/collection and delivery & return.
For a domestic transaction, companies can verify client credit worthiness and source of payment while international transaction, it is difficult it not impossible to verify creditworthiness and source of payment. The international client can make payment through fraudulent means, and the could be no repercussion.
If there were payment arrangements and the client defaults on the terms and conditions of the contract, the supplier will have to invest the entire collection process. If the right steps are not taken, good money will go chasing bad money which could increase the loss.
Assume customer input a wrong data and the good is shipped to that country. The good insist that the wrong goods were supplied and must be changed. The question here will be who pays for return shipment?
Domestic companies could easily handle return shipment, but the international shipment is costly.
4. As consumers, we encounter (knowingly and unknowingly) inventory controls all the time (e.g., locked jewelry cases). What are 1-2 less obvious inventory control measures used? Are these measures effective?
Barcode and alarm system – this control is somewhat effective with complete control in place. All inventories are barcoded and logged when an item is not rung up, the system alarms to alert the store of unpaid item leaving the store. Some machines do not recognize when an item is checked out and deleted; thus, an item could leave the store with any alert.
Some stores do not have the barcode and alarm system in place. Instill they depend on human verification and validation. This is kind of an effort, but I do not think it effective because of the risks _ human error, conspiracy, oversight, etc.