Question - Jill and Jack are department managers in the housewares and shoe departments, respectively, for Saars, a large department store. Jack has observed Jill taking inventory home from her own department, apparently without paying for it. He hesitates confronting Jill because he is due to be promoted, and needs Jill's recommendation. He also does not want to notify the company management directly, because he doesn't want an ethics investigation on his record, believing that it will give him a "goody-goody" image. This week, Jill tried on several pairs of expensive running shoes in his department before finding a pair that suited her. She did not, however, buy them. That very pair was missing this morning.
Saars recently replaced its old periodic inventory system with a perpetual inventory system using scanners and bar codes. In addition, the annual inventory is to be replaced by a monthly inventory conducted by an independent accounting firm. On hearing the news of the changes, Jack relaxes. "The system will catch Jill now," he says to himself.
Required: Based on your audit work, assume the above information became known to you as an audit manager at the independent accounting firm conducting the monthly inventory. Jack has also admitted to you his knowledge of the theft of inventory. Prepare an appropriate written communication to the CFO of Saars in response to your findings.