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Introduction
Important balance sheet items include assets. Assets are the most important thing in any organization. Presentation of assets in financial statement can be divided into two, which are non-current assets and current assets. Non-current assets are also known as fixed asset, where the values are very high and useful life is more than one year. However, a current asset has a useful life below than one year. Examples of current assets are inventory, account receivable, cash in hand and cash in bank. Current assets are more liquid compared to fixed asset, meaning that they can be converted into cash in a short period. Therefore, management of the current asset items like inventory or stock is very important to ensure good performance of the company (Elsayed and Wahba, 2013) because inventory forms a significant portion of the current assets or equity for many organizations (Filbeck and Krueger, 2005). Rajeev (2008) suggests that business will face a significant loss if there is a failure and incompetency in overseeing inventory management. Besides, managing inventory demands huge investment such as large warehouses. Wrong investment decisions will pull a company to the brink of loss. In addition, investment in inventory management is not an everyday expense. Instead, the expenditure incurred remains fixed for a long period (Dennis and Meredith, 2000).
Unfortunately, there are many issues in inventory management that occur in an organization, especially for the manufacturing type of company. For example, Albrecht et al. (2011) suggest that frauds in inventory have been such a common problem for business that trim down company’s profit figures. Based on KPMG (2009), theft of inventory recorded the second highest type of fraud incurred by Malaysian companies of 31 per cent, just behind theft of cash at 39 per cent from overall types of fraud perpetrated. Another survey conducted by the PriceWaterhouseCoopers (PWC Malaysia, 2016) found that asset misappropriation was the most economic crime reported at 57 per cent, while procurement fraud was 17 per cent. Based on the respondents of the survey, majority of the assets misappropriations were done via false invoicing and straight-out theft. The respondents also added that inventory and supply chain are particularly vulnerable for re-sale or to be sold as scrap.
Inability to manage inventory efficiently also will...