• Data & Evidence Collection – The audit team collected information about normal procedures and internal controls followed by the company to deliver the goods from manufacturing unit to stockyard. As per the procedure whenever inventory level at any location falls below reorder level, an automatic message is sent by the system to the operation manager at head office. Order for manufacturing to one manufacturing unit out of three is given depending on the availability of resources at the manufacturing units. It takes maximum 4 days to deliver the order from any manufacturing unit to any stockyard.
• Audit team collected duplicates of original transport documents for the last reorder level maintained at Delhi’s stockyard. As per the document the last delivery was done by Vapi unit on 8^th June 2018 to maintain the reorder level.
• Audit team took digital image of inventory movement ledger of Delhi’s stock from 8^th June to 19^th June 2018 and the copy of inward & outward register maintained at Delhi stockyard for the same. As per the inventory report, inventory was stated back to reorder level on 8^th June 2018 which matched with the transport documents and inward register of Delhi stockyard.
• As per the Inventory register till 10^th June inventory was lying at reorder level and none of the order was pending on 10^th June or placed between 8^th June and 10^th Order of M/s RST Limited was processed and only 30 kg of goods were delivered as per inventory report but still 20 kg of goods were lying in the inventory.
• To get more accurate evidence audit team obtained approval from management and got the digital image of data in the laptop of Stockyard Manager and Logistic Manager at Delhi Stockyard.
• At the time of verifying the deleted mails audit team found that certain deleted mails were marked to logistic manager and Mr A (unknown person) stating transfer of 20kg of goods on 9^th June 2018.
• Based on the above evidences audit team got written permission from management to conduct interview of Stockyard Manager and Logistic Manager of Delhi’s stockyard.

• Interview – The first person interviewed by audit team was Logistic Manager. After showing the evidence to the manager he informed the audit team that 20 kg yellow pigment was delivered to Mr A on 9^th June 2018 who is another manufacturer of pigments. This transaction was not recorded in the system nor any delivery challans were made for the same, also no entry was made in outward register of stockyard. Hence the inventory as per inventory movement ledger on 9^th June 2018 was still available at 50 kg.

Afterwards, 20 kg of order was returned by Mr A on 16^th June 2018 due to which delivery to M/s RST was delayed. Logistic manager accepted that he was part of this deal and wanted to make profits out of such transactions, however he informed audit team that his part was just to deliver the goods and get it back from Mr A.

• With evidence collected from Logistic Manager, audit team interviewed Stockyard manager. On confronting stockyard manager, he accepted that he was involved in manipulation of excess stock lying in the stockyard. He sold the pigments to Mr A who was in urgent need of 20 kg yellow pigment to fulfil another order of its customer. As the inventory lying in stockyard was at reorder level, stockyard manager opted to make some external gains by entering into an out of the books fictitious transaction by providing 20 kg of yellow pigment to Mr A on commission basis to earn profit out of the stock lying in inventory. In return the same quality goods with the same packaging was supposed to be returned in 7 days to the stockyard by Mr A.

In case of M/s RST the order for 40 kg came as an urgent requirement, whereas the actual stock available at stockyard was just 30 kgs which was supplied instantly to the customer on 10^th June 2018. The PQR at least takes 7 to 8 days to manufacture and deliver 10 kg of any pigment to Delhi stockyard. Therefore, even to get new stock on 10^th June was not possible and hence stockyard manager had to wait for the stock which was to be returned by Mr A on 16^th June. As soon as the stock arrived from Mr A, Stockyard manager made the delivery to M/s RST immediately.

Also, he accepted that such out of the books transactions were made many times to earn income out of unutilized stock lying in stockyard.