Certified Internal Auditor (CIA) Practice Test

What is the most reliable source of information indicating employee theft of inventory?

1. Physical inspection of inventory items

2. A verbal charge from a warehouse employee

3. Discrepancies between inventory counts

4. Accounts payable transactions

The correct answer is: Discrepancies between inventory counts

The most reliable source of information indicating employee theft of inventory is discrepancies between inventory counts. This method provides a quantitative measure that can directly signal irregularities in inventory management, which may point to theft. When actual inventory counts do not match recorded inventory levels, it raises a clear red flag that something may be wrong. Discrepancies can highlight patterns over time, allowing for further investigation into specific inventory items or periods where mismatches occur. These irregularities could stem from various causes, including theft, spoilage, or errors in record-keeping. Thus, the ability to quantify losses gives discrepancies a higher level of reliability as evidence compared to other options. Physical inspection of inventory items can indicate issues but may not provide an overarching view as it relies on a snapshot rather than a comprehensive analysis. Similarly, a verbal charge from a warehouse employee, while potentially informative, is subjective and can be based on hearsay rather than objective data. Accounts payable transactions relate more to the purchasing side and may not directly indicate theft of existing inventory, making it less relevant in this context.