5.1 An experienced senior auditor was assigned to investigate a possible fraudulent situation characterized by extremely high, unexplained merchandise shortages at one at one location of the company’s department store chain. During the course of the investigation, the auditor determined the following: a. The fact that the supervisor of the receiving department being an owner of a small boutique that sells some of the same merchandise is unrelated to the investigation, because it doesn’t mean that fraudulent activities will take place. b. This situation indicates fraud, because 5% to 10% of the inventory that came into the receiving department was shipped to the boutique that is owned by the supervisor of receiving. c. This scenario is a fraudulent act, because the receiving supervisor wrote the correct quantities on the move tickets that are placed with the merchandise. d. The fact that the department stores accounts payable department paid the vendors for the total amount of inventory on the receivable report. e.
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