Pharma Distributor — Catching an Inventory Leak During Statutory Audit
A routine annual audit surfaced roughly ₹62 lakh in unexplained shrinkage over eighteen months. NDSA traced it to a control failure at dispatch and closed the gap within a month.
A routine audit, no specific concerns
A pharmaceutical distributor engaged NDSA for their annual statutory audit, expecting it to be routine — the business had grown steadily for five years and the promoter had no specific concerns going in.
There was a single warehouse, a small finance team, and stock records that were reconciled, on paper, every quarter.
A gap too small to notice — until it added up
During physical stock verification, our audit team identified a consistent gap between book inventory and physical stock for a specific category of high-value, fast-moving products — small enough each quarter to get written off as standard breakage and spoilage, but adding up to roughly ₹62 lakh in unexplained shrinkage over eighteen months.
The pattern pointed to a control failure at the dispatch stage rather than genuine wastage, with goods leaving the warehouse without being properly recorded against sales.
Flagged it early and fixed the control gap
We flagged the discrepancy to the promoter immediately rather than waiting for the audit report, and worked with him to trace the gap to a dispatch process where one warehouse supervisor had sole control over both the stock register and physical release of goods — a basic segregation-of-duties gap.
We helped design and implement a revised dispatch control with independent verification at release, and supported an internal investigation that the promoter ran separately.
"A statutory audit's job is to confirm the numbers are right — but a good audit also asks why they're right, and that question is often where the real findings live."
Leak closed, and a standing review in place
The control gap was closed within a month, and shrinkage in the following two quarters dropped to negligible levels, confirming the leak rather than genuine spoilage was the cause.
The promoter has since asked NDSA to run a quarterly internal controls review alongside the annual audit, so a gap like this surfaces in weeks rather than being absorbed into the books for a year and a half.
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