Who should conduct physical observations of a company's inventory to most effectively prevent inventory theft?

The most effective choice for conducting physical observations of a company's inventory to prevent theft is an internal auditor.

An internal auditor operates independently from the day-to-day operations of the organization, which allows them to maintain an objective perspective when assessing inventory. Their primary role includes evaluating the adequacy and effectiveness of internal controls, including those related to inventory management. By performing physical observations, they can verify the existence and condition of inventory while also examining the processes surrounding its management. This approach fosters a more thorough and unbiased analysis that can deter potential theft because employees are aware that an independent party is monitoring inventory practices.

In contrast, individuals such as the purchasing supervisor, purchasing agent, or warehouse personnel may have conflicts of interest or be directly involved in the inventory process. Their roles could potentially bias their observations or make them less effective in identifying discrepancies or theft since they are part of the system that is being evaluated. Hence, having someone outside the immediate workflow, like an internal auditor, is critical in ensuring that inventory theft is effectively monitored and controlled.