Fraud vs. Internal Control in Inventory Management: A Case Study of a Newly Established Healthcare Trading Company in Indonesia

This paper investigates fraud risk in inventory management at a newly established healthcare trading company, referred to as PT A. Fraud Triangle theory and the COSO internal control framework, it examines how insufficient controls, particularly in inventory documentation and monitoring, create opportunities for asset misappropriation. Data were collected through document analysis, semi-structured interviews, and on-site observations of warehouse procedures. The findings highlight significant issues, including the absence of Standard Operating Procedures (SOPs), inadequate segregation of duties, and a lack of regular stock-taking, all of which amplify fraud risk. For example, unclear SOPs lead to inconsistent inventory practices, while insufficient task segregation enables unchecked access to sensitive processes. These weaknesses align with the Fraud Triangle theory, which links opportunity and unethical behavior to heightened fraud risk. To mitigate these risks, the study recommends implementing the COSO framework to establish a robust internal control system. This would address the lack of SOPs by standardizing inventory procedures and clarifying task responsibilities. Anti-fraud awareness training is proposed to reduce ethical pressures, while advanced IT systems can improve inventory monitoring and facilitate regular stock-taking, directly reducing opportunities for mismanagement. By linking specific findings, such as weak internal controls, to tailored recommendations like adopting the COSO framework, this paper provides actionable solutions. It contributes to the literature on fraud risk assessment, internal controls, and inventory management within highly regulated industries, offering insights into preventing fraud in newly established organizations.