A couple of years back, I wrote a story for IEEE Spectrum on Why Software Fails. I opened with the story that has been floating around the software business for the past twenty years about the disappearing warehouse. Well, yesterday I read a story in the Wall Street Journal about another "disappearing" warehouse - this time to help hide accounting fraud.
The story (subscription required) concerned the electronics company International Rectifier which recently admitted in filings with the US Security and Exchange Commission (SEC) that its Audit Committee had found some "material weaknesses in internal control," one being that a "foreign subsidiary where from time to time certain unsubstantiated orders were entered. These orders resulted in the shipment of products and the recording of sales with no obligation by customers to receive and pay for the products. The practice included routing certain product shipments to warehouses not on the Company's logistical systems."
An, the phantom warehouse trick, as Maxwell Smart used to say! Not quite a disappearing warehouse, but hey, close enough.
For those interested in the history of phantom inventories and how computing systems are great for helping along the practice, I suggest you start with a nice overview posted at the American Institute of Certified Public Accountants (AICPA). You'll find several tracks to follow from there.
