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Potential Errors and Fraud in Just-In-Time Inventory & EOQ

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Discuss the potential for errors of fraud in the context of just-in-time inventory systems and economic order quantity.

Then, discuss the potential for errors of fraud in the revenue and cash disbursements cycle. What are some procedures that may be used to prevent such errors in fraud?

Please cite any sources used in APA style.

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Solution Summary

Your tutorial is 390 words and gives several examples of frauds in the revenue and cash disbursement cycle and typical audit procedures to find them. The discussion mentions how just-in-time and EOQ disciplines reduces fraud risk and how.

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Fraud is most likely to occur when the following conditions are met: opportunity, pressure and rationalization. Just-in-time inventory and economic order quantity practices keep inventory levels down and this reduces opportunity. Why? Because there are fewer units on hand and so errors are more obvious. If you only have two units in stock, and one is missing, that's noticed. If you have 37 in stock and one is missing, it is not noticed. Further, if you have a practice of ordering as needed for a project (just-in-time) then orders that are for non-business purposes (fraud), stick out as exceptions. Why? Every order is mapped to a project and so orders ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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