Question:
Accounting In Action Business Insight
Failure to observe the foregoing internal control procedures contributed to the Great Salad Oil Swindle. In this case, management intentionally overstated its salad oil inventory, which was stored in large holding tanks. Three procedures contributed to overstating the oil inventory: (1) Water added to the bottom of the holding tanks caused the oil to float to the top. Inventory-taking crews who viewed the holding tanks from the top observed only salad oil. In fact, as much as 37 of 40 feet of many of the holding tanks contained water. (2) The company's inventory records listed more holding tanks than it actually had. The company repainted numbers on the tanks after inventory crews examined them, so the crews counted the same tanks twice. (3) Underground pipes pumped oil from one holding tank to another during the inventory taking. Therefore, the same salad oil was counted more than once. Although the salad oil swindle was unusual, it demonstrates the complexities involved in ensuring that inventory is properly counted.