,AUE4863 ASSIGNMENT 2
DUE DATE: 29 JUNE 2026
QUESTION ONE
1. Theft of raw materials during receiving and storage
One of the most common inventory misappropriation schemes at La Batho would
involve the theft of raw materials at the point of receiving or during storage. Since the
company handles large volumes of maize, sorghum, oil seeds and vegetables across
decentralised hubs, employees responsible for receiving stock may manipulate records
to conceal theft. This can occur when employees understate the quantity received from
suppliers while physically taking the difference for personal gain. For example, if 1 000
bags of maize are delivered but only 900 are recorded, the remaining 100 may be stolen
without immediate detection. According to the fraud triangle theory, opportunity is one
of the major drivers of occupational fraud, and weak controls in inventory systems
create ideal conditions for this type of misconduct (Cressey, 1953; Wells, 2022).
At La Batho, the risk is significant because production hubs are spread across several
provinces, making physical supervision difficult. Internal audit findings already indicate
unexplained shortages, suggesting that stock may be disappearing before entering the
official inventory system. Employees in collusion with suppliers may also intentionally
accept short deliveries while approving full invoices, allowing both parties to benefit
financially. This type of scheme directly affects cost of sales, production schedules and
profitability because missing raw materials disrupt manufacturing processes. Singleton
and Singleton (2023) note that receiving fraud often thrives where there is poor
segregation of duties between receiving, recording and authorising stock.
The impact of this scheme extends beyond financial loss. If raw materials are stolen,
production targets for schools and NGOs may not be met, damaging La Batho’s
, reputation and contractual obligations. Cross-border supply commitments to Lesotho,
Eswatini and Mozambique could also be delayed. To reduce this risk, La Batho should
implement surprise stock counts, automated barcode scanning and stronger
segregation of duties between receiving clerks and warehouse supervisors (Albrecht et
al., 2024).
2. False transfer of inventory between production hubs
A second scheme involves the manipulation of inter-branch transfers. Because La Batho
operates four production and storage hubs, stock is constantly moved between
Mbombela, Mooketsi, Botshabelo and Mafikeng. Fraudsters may create fictitious
transfer documents to make it appear as though stock was moved from one hub to
another, when in reality it was stolen. This type of fraud exploits the complexity of
decentralised logistics systems, especially where inventory reconciliation is delayed.
Wells (2022) explains that inventory transfer fraud is difficult to detect because both
the sending and receiving locations may assume the other is accountable.
For instance, warehouse staff at Mbombela may record that 500 cartons of peanut
butter were transferred to Botshabelo, but the goods may never arrive. If there is poor
communication or delayed verification, the loss may remain hidden for weeks or
months. This scheme can also involve collusion between drivers, dispatch officers and
receiving clerks. In a decentralised environment like La Batho’s, such collusion
increases significantly because operational oversight is fragmented. According to Free
(2024), inter-location fraud is particularly common in organisations with multiple
warehouses and weak digital tracking systems.
The critical problem here is that this scheme undermines inventory integrity across the
whole supply chain. It creates discrepancies in stock balances, affects customer orders
and can distort financial reporting. If internal audit detects repeated anomalies,
management may lose confidence in branch performance. La Batho should therefore
introduce real-time inventory management systems using GPS and digital proof of
DUE DATE: 29 JUNE 2026
QUESTION ONE
1. Theft of raw materials during receiving and storage
One of the most common inventory misappropriation schemes at La Batho would
involve the theft of raw materials at the point of receiving or during storage. Since the
company handles large volumes of maize, sorghum, oil seeds and vegetables across
decentralised hubs, employees responsible for receiving stock may manipulate records
to conceal theft. This can occur when employees understate the quantity received from
suppliers while physically taking the difference for personal gain. For example, if 1 000
bags of maize are delivered but only 900 are recorded, the remaining 100 may be stolen
without immediate detection. According to the fraud triangle theory, opportunity is one
of the major drivers of occupational fraud, and weak controls in inventory systems
create ideal conditions for this type of misconduct (Cressey, 1953; Wells, 2022).
At La Batho, the risk is significant because production hubs are spread across several
provinces, making physical supervision difficult. Internal audit findings already indicate
unexplained shortages, suggesting that stock may be disappearing before entering the
official inventory system. Employees in collusion with suppliers may also intentionally
accept short deliveries while approving full invoices, allowing both parties to benefit
financially. This type of scheme directly affects cost of sales, production schedules and
profitability because missing raw materials disrupt manufacturing processes. Singleton
and Singleton (2023) note that receiving fraud often thrives where there is poor
segregation of duties between receiving, recording and authorising stock.
The impact of this scheme extends beyond financial loss. If raw materials are stolen,
production targets for schools and NGOs may not be met, damaging La Batho’s
, reputation and contractual obligations. Cross-border supply commitments to Lesotho,
Eswatini and Mozambique could also be delayed. To reduce this risk, La Batho should
implement surprise stock counts, automated barcode scanning and stronger
segregation of duties between receiving clerks and warehouse supervisors (Albrecht et
al., 2024).
2. False transfer of inventory between production hubs
A second scheme involves the manipulation of inter-branch transfers. Because La Batho
operates four production and storage hubs, stock is constantly moved between
Mbombela, Mooketsi, Botshabelo and Mafikeng. Fraudsters may create fictitious
transfer documents to make it appear as though stock was moved from one hub to
another, when in reality it was stolen. This type of fraud exploits the complexity of
decentralised logistics systems, especially where inventory reconciliation is delayed.
Wells (2022) explains that inventory transfer fraud is difficult to detect because both
the sending and receiving locations may assume the other is accountable.
For instance, warehouse staff at Mbombela may record that 500 cartons of peanut
butter were transferred to Botshabelo, but the goods may never arrive. If there is poor
communication or delayed verification, the loss may remain hidden for weeks or
months. This scheme can also involve collusion between drivers, dispatch officers and
receiving clerks. In a decentralised environment like La Batho’s, such collusion
increases significantly because operational oversight is fragmented. According to Free
(2024), inter-location fraud is particularly common in organisations with multiple
warehouses and weak digital tracking systems.
The critical problem here is that this scheme undermines inventory integrity across the
whole supply chain. It creates discrepancies in stock balances, affects customer orders
and can distort financial reporting. If internal audit detects repeated anomalies,
management may lose confidence in branch performance. La Batho should therefore
introduce real-time inventory management systems using GPS and digital proof of
