UNIVERSITY OF SOUTH AFRICA (UNISA)
College of Accounting Sciences — Department of Auditing
⋄
FINANCIAL FRAUD SCHEMES
Assignment 02 — Semester 1, 2026
⋄
Module Code: AUE4863
Module Name: Financial Fraud Schemes
Assignment No.: Assignment 02
Due Date: 29 June 2026
Semester: Semester 1, 2026
Unique Number: 597318
Submitted in partial fulfilment of the requirements for Financial Fraud Schemes (AUE4863)
at the University of South Africa.
,UNISA | AUE4863 Financial Fraud Schemes — Assignment 02
Question 1: Inventory and Asset Misappropriation Schemes at La Batho (25 marks)
Asset misappropriation is the most frequently reported category of occupational fraud, present
in 89% of all cases studied in the ACFE’s 2024 Report to the Nations (ACFE, 2024). In food
processing environments like Lefa-La Batho Agri Processing (Pty) Ltd, the risk is particu-
larly acute because large volumes of raw materials and finished goods move through multiple
hubs, across provincial boundaries, and into neighbouring countries. This geographic decen-
tralisation, combined with the high inherent value of inventory, creates a fertile environment
for misappropriation. Four schemes through which raw materials and finished goods could be
misappropriated at La Batho are discussed below.
1.1 Theft of Inventory through Physical Removal
Description of the scheme:
Physical theft of inventory is the most direct form of asset misappropriation. It involves em-
ployees, contractors, or third parties removing company goods without authorisation and with-
out making any adjustment to inventory records (ACFE, 2024). In a food processing setting,
both raw materials (such as maize or cooking oil) and finished goods (such as canned veg-
etables or peanut butter) are targets because they are easily converted to cash on secondary
markets.
Application at La Batho:
At La Batho, the decentralised structure across four production hubs creates numerous un-
supervised access points. Warehouse workers or truck drivers transporting goods between
Mbombela, Mooketsi, Botshabelo, and Mafikeng could remove quantities of maize meal or
cooking oil during transit. Because goods are moving between hubs, short deliveries may go
undetected for extended periods if receiving staff and despatch staff do not reconcile docu-
ments independently. The fact that shipments also cross international borders into Lesotho,
Eswatini, and Mozambique compounds the problem: goods removed before the border cross-
ing point may not appear as missing until a customer at destination reports a shortage.
Red flags consistent with this scheme, such as unexplained inventory shortages and anomalies
in raw material handling, have already been uncovered by La Batho’s internal audit team led
by Mathapelo Masemola, strongly suggesting this scheme may already be in operation.
Page 1 of 16
, UNISA | AUE4863 Financial Fraud Schemes — Assignment 02
Critical Consideration
Physical theft becomes especially damaging in decentralised operations where no single
custodian has full visibility over a shipment from source to destination. The combina-
tion of multiple hub transfers and cross-border delivery at La Batho means a missing
quantity could be attributed to transit losses rather than theft, allowing the fraud to
continue undetected.
1.2 Fictitious or Inflated Inventory Adjustments (Inventory Write-Off Fraud)
Description of the scheme:
This scheme occurs when employees with system access manipulate inventory records to write
off goods as damaged, expired, or destroyed, while physically retaining and diverting those
same goods (Aprio, 2024). The accounting entry reduces the inventory balance on paper,
providing a cover story for the missing goods, while the perpetrator benefits from selling or
personally using the goods.
Application at La Batho:
La Batho processes perishable food products including canned vegetables, peanut butter, and
cooking oils. Supervisors or quality control personnel at any of the four production hubs could
raise fictitious write-off entries for batches of finished goods, claiming they were rejected due
to quality failures or contamination. The goods are then removed from the premises and sold.
Because the write-off entries appear in the system as a legitimate quality event, the fraud is
masked behind an operational justification. This scheme is particularly plausible at La Batho
given the cross-hub movement of goods: a batch written off at Mooketsi as “substandard” may
never be physically verified by anyone at Mbombela head office.
Key Distinction
The difference between a legitimate write-off and a fraudulent one is the physical fate
of the goods. In a genuine quality rejection, goods are destroyed or returned to a sup-
plier with documentation. In a fictitious write-off, the goods continue to exist and are
diverted for personal gain. Forensic auditors should therefore not only review write-off
entries but also inspect disposal records and verify that destruction was witnessed
independently.
Page 2 of 16
College of Accounting Sciences — Department of Auditing
⋄
FINANCIAL FRAUD SCHEMES
Assignment 02 — Semester 1, 2026
⋄
Module Code: AUE4863
Module Name: Financial Fraud Schemes
Assignment No.: Assignment 02
Due Date: 29 June 2026
Semester: Semester 1, 2026
Unique Number: 597318
Submitted in partial fulfilment of the requirements for Financial Fraud Schemes (AUE4863)
at the University of South Africa.
,UNISA | AUE4863 Financial Fraud Schemes — Assignment 02
Question 1: Inventory and Asset Misappropriation Schemes at La Batho (25 marks)
Asset misappropriation is the most frequently reported category of occupational fraud, present
in 89% of all cases studied in the ACFE’s 2024 Report to the Nations (ACFE, 2024). In food
processing environments like Lefa-La Batho Agri Processing (Pty) Ltd, the risk is particu-
larly acute because large volumes of raw materials and finished goods move through multiple
hubs, across provincial boundaries, and into neighbouring countries. This geographic decen-
tralisation, combined with the high inherent value of inventory, creates a fertile environment
for misappropriation. Four schemes through which raw materials and finished goods could be
misappropriated at La Batho are discussed below.
1.1 Theft of Inventory through Physical Removal
Description of the scheme:
Physical theft of inventory is the most direct form of asset misappropriation. It involves em-
ployees, contractors, or third parties removing company goods without authorisation and with-
out making any adjustment to inventory records (ACFE, 2024). In a food processing setting,
both raw materials (such as maize or cooking oil) and finished goods (such as canned veg-
etables or peanut butter) are targets because they are easily converted to cash on secondary
markets.
Application at La Batho:
At La Batho, the decentralised structure across four production hubs creates numerous un-
supervised access points. Warehouse workers or truck drivers transporting goods between
Mbombela, Mooketsi, Botshabelo, and Mafikeng could remove quantities of maize meal or
cooking oil during transit. Because goods are moving between hubs, short deliveries may go
undetected for extended periods if receiving staff and despatch staff do not reconcile docu-
ments independently. The fact that shipments also cross international borders into Lesotho,
Eswatini, and Mozambique compounds the problem: goods removed before the border cross-
ing point may not appear as missing until a customer at destination reports a shortage.
Red flags consistent with this scheme, such as unexplained inventory shortages and anomalies
in raw material handling, have already been uncovered by La Batho’s internal audit team led
by Mathapelo Masemola, strongly suggesting this scheme may already be in operation.
Page 1 of 16
, UNISA | AUE4863 Financial Fraud Schemes — Assignment 02
Critical Consideration
Physical theft becomes especially damaging in decentralised operations where no single
custodian has full visibility over a shipment from source to destination. The combina-
tion of multiple hub transfers and cross-border delivery at La Batho means a missing
quantity could be attributed to transit losses rather than theft, allowing the fraud to
continue undetected.
1.2 Fictitious or Inflated Inventory Adjustments (Inventory Write-Off Fraud)
Description of the scheme:
This scheme occurs when employees with system access manipulate inventory records to write
off goods as damaged, expired, or destroyed, while physically retaining and diverting those
same goods (Aprio, 2024). The accounting entry reduces the inventory balance on paper,
providing a cover story for the missing goods, while the perpetrator benefits from selling or
personally using the goods.
Application at La Batho:
La Batho processes perishable food products including canned vegetables, peanut butter, and
cooking oils. Supervisors or quality control personnel at any of the four production hubs could
raise fictitious write-off entries for batches of finished goods, claiming they were rejected due
to quality failures or contamination. The goods are then removed from the premises and sold.
Because the write-off entries appear in the system as a legitimate quality event, the fraud is
masked behind an operational justification. This scheme is particularly plausible at La Batho
given the cross-hub movement of goods: a batch written off at Mooketsi as “substandard” may
never be physically verified by anyone at Mbombela head office.
Key Distinction
The difference between a legitimate write-off and a fraudulent one is the physical fate
of the goods. In a genuine quality rejection, goods are destroyed or returned to a sup-
plier with documentation. In a fictitious write-off, the goods continue to exist and are
diverted for personal gain. Forensic auditors should therefore not only review write-off
entries but also inspect disposal records and verify that destruction was witnessed
independently.
Page 2 of 16
