Inventory was performed on a satellite branch. The company inventory is approximately $30M while the satellite is approximately $250K. There was a loss of $60K at the satellite branch. One item was marked as found that wasn't there which would have increased the loss another $10K. This item was once in inventory but is now expensed as a consumable. The satellite manager wants to mark the item as found and relieve inventory in the future. I feel the satellite manager is concealing the loss and it should be recognized now. Is the satellite manager being ethical by extending the term of the loss?

This may not be unethical behaviour, either the item was used as a consumable or it was not. The fact that it has been issued from inventory in advance may just be a procedural matter. There may be a case for returning the item to inventory if it hasn't been used, but this would call into question other accounting practices which may distort results. You might want to look at all their inventory handling practices, how have they valued work in progress? Established proper cut off points for reporting? Have they written down old or obsolete inventory? losses can accumulate over time if transactions are not handled properly in balance date adjustments. Without knowing the industry it is difficult to comment.
.
What I have always found useful is to do stocktaking independently of the stock record and reconcile with the stock record. This methodology can show up losses that were not obvious