Fictitious Inventory Write-Off
Definition
A journal entry that reduces the recorded inventory balance under a legitimate category (obsolescence, spoilage, shrinkage) without an actual loss of stock. The recorded reduction either conceals a prior theft or directly generates a credit that the fraudster converts to cash.
- Mechanism
- Journal entry reducing recorded inventory
- Disguise categories
- Obsolescence, spoilage, shrinkage
- Effect 1
- Conceals a prior theft
- Effect 2
- Generates a credit converted to cash
Common questions
How does this scheme differ from a genuine inventory write-off?+
A genuine write-off matches an actual physical loss or damage that occurred, while a fictitious one records the reduction on paper only, either to reconcile the books with an earlier undetected theft or to create a credit the fraudster then diverts.
What would an investigator check to distinguish the two?+
Physical count reconciliation, disposal or destruction records, and whether the write-off correlates with a specific documented event rather than a recurring pattern lacking any supporting physical evidence.
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