You are the Management Accountant for P, a food manufacturing company with an annual sales revenue of $5 million.
You discover that the Production Manager's records are inconsistent. Raw materials purchased do not agree to the total recorded for transfers to production plus wastage. There is an average shortfall of 2% of purchases.
You investigated and discovered that there are often mistakes made during manufacturing that results in food that is safe to eat, but cannot be sold because of visual flaws. The Production Manager is supposed to scrap all such damaged product and write all such losses off as waste, but you discovered that he has been giving the damaged food to a charity that assists homeless people. No records are made of such gifts in order to conceal the losses due to manufacturing errors.
What should you do?
- Do nothing, this is a good cause and the amount is insignificant.
- Instigate disciplinary action, this is both theft and poor management.
- Instigate a confidential, but documented, review with the Production Manager and tell him to stop.
- Instigate a review of the production process to potentially reduce the amount of wastage.
- Instigate a process whereby edible but unsellable items can be given to the charity officially.