Employee theft is noted by Mishra and Prassad (2006) to be a major component of private and public retail shrinkage.There is a consensus that theft in the workplace constitutes a serious offense and is a cause of serious problem (Weber, Kurke & Pentico, 2003).Employees have been noted to steal time, money, merchandise as well as other forms of company property like information in exchange for cash and other forms of favors.In this case we analyse the following scenario: Donald Reynolds, director of the internal auditing department, received an anonymous tip from an employee in one of the high tech manufacturing plants. The employee noted that there was a major embezzlement taking place in one of the divisions. Internal audit had completed a routine review of internal control of that division the previous year and found that the control system was properly designed and operating effectively. Only minor recommendations were made, and the next review is due 3 years later. The employee noted the erratic behavior and lavish lifestyle of the plant controller and stated that the controller has been overriding existing controls, which would prevent any audit from being able to detect the embezzlement. The plant controller is well-respected and highly trusted by the CEO and CFO, and their families are involved in the same civic and religious organizations. Investigating the plant controller could cause considerable disruption in the company and the personal lives of the employees. Please answer the following questions. As you answer each question, you must provide support or evidence that will enhance and empirically prove your answers. Academic criminal justice articles or real life criminal justice findings that are not found in journals or other academic sources must be used in supporting your answers. Please use APA style for all cited sources including your resource page. Given the situation, discuss some of the options the company has for handling this situation. Assuming you decide to investigate these allegations, describe the investigation steps. In preparation for the interviews, note the order of the witnesses who would be interviewed and how you would plan, conduct, and document your interviews. Discuss how you would conduct an admission-seeking interview of the plant controller. Please submit your assignment. Donald Reynolds, director of the internal auditing department, received an anonymous tip from an employee in one of the high tech manufacturing plants. The employee noted that there was a major embezzlement taking place in one of the divisions. Internal audit had completed a routine review of internal control of that division the previous year and found that the control system was properly designed and operating effectively. Only minor recommendations were made, and the next review is due 3 years later. The employee noted the erratic behavior and lavish lifestyle of the plant controller and stated that the controller has been overriding existing controls, which would prevent any audit from being able to detect the embezzlement. The plant controller is well-respected and highly trusted by the CEO and CFO, and their families are involved in the same civic and religious organizations. Investigating the plant controller could cause considerable disruption in the company and the personal lives of the employees. Please answer the following questions. As you answer each question, you must provide support or evidence that will enhance and empirically prove your answers. Academic criminal justice articles or real life criminal justice findings that are not found in journals or other academic sources must be used in supporting your answers. Please use APA style for all cited sources including your resource page. Given the situation, discuss some of the options the company has for handling this situation. Assuming you decide to investigate these allegations, describe the investigation steps. In preparation for the interviews, note the order of the witnesses who would be interviewed and how you would plan, conduct, and document your interviews. Discuss how you would conduct an admission-seeking interview of the plant controller. Please submit your assignment.
Employee theft is noted by Mishra and Prassad (2006) to be a major component of private and public retail shrinkage.There is a consensus that theft in the workplace constitutes a serious offense and is a cause of serious problem (Weber, Kurke & Pentico, 2003).Employees have been noted to steal time, money, merchandise as well as other forms of company property like information in exchange for cash and other forms of favors. Wells (2001) noted that opportunity is the main reason for commissioning fraud. According to the U.S. Chamber of Commerce, U.S. employees lose between $20-$40 billion annually through employee theft alone. This theft is noted to be responsible for 30% of all business failure (Condon,2003).Bamfield (2004) further indicated that employee theft is commonplace in the business today.
General prevention strategies against employee theft: A literature review
Vigilance is noted as the key to the prevention of corporate fraud and the prevention initiatives must involve all employees. If ignored then, it can have serious consequences on the affected company (Bokaba,2005). Glover (1995) for instance noted that electrical surveillance can help in the reduction of employee theft by between 35 to 75%. The breakdown in the levels and forms of management controls are noted by Hemphill and Hemphill (1975) to be the main reasons as to why employees can gain unscrupulous access to company money as well as property.
According to Anderson (2007) employees engage themselves in corporate fraud as a result of three main factors. These are;
The presence of a situational pressure such as a financial need
The presence of a perceived opportunity to participate in or conceal a crime as well as
A method of rationalizing a dishonest act as noted by Albrecht and Wernz (1993).
How company can handle the suspected fraud case
Before embarking on the fraud detection methods, it is critical that we conduct a review of what constitutes fraud, why people engage in fraud, why it happens as well as how fraud manifests itself in any given company. Association of Certified Fraud Examiners (ACFE), defines fraud as the deception as well as misrepresentation that a person or an entity makes with the knowledge that the misrepresentation could give rise some unauthorized benefit to the person or to the entity or any other party (Lyer, 2006,p.579).Mistake are therefore not fraud (Ernst & Young,2009). IN this particular case the employee were alerted by the erratic behavior as well as the lavish lifestyle of the plant controller while also stating that the controller had been overriding the existing controls and thereby preventing any audit process from being able to effectively detect the ongoing embezzlement. The plant controller is noted to be well-respected and enjoyed a lot of trust from the CEO and the CFO. Their families are also noted to be involved in the same civic as well as religious organizations. The fact that launching of an investigation on the plant controller's perceived fraudulent operations could cause considerable disruption in the corporation's operations and the personal lives of the employees makes such a move extremely dangerous to the very existence of the company.
The analysis of the possible fraud scenario
The lavish lifestyle
Lavish lifestyle is noted by Albrecht et al. (2011) not to be a sure sign that fraud is indeed taking place in a given company. A person's income must reflect their source of income. There is however a general need for the truth to be established on the actual source of income before branding any of the cases a fraud. This is because one might owe their sudden change in income to privately sourced funds such as inheritance and lottery wins.
The tempering with the set internal controls
One of the reasons for the alleged fraud commissioning in the company is the tampering with the internal auditing controls by the suspected employee. Some of the common internal controls involve check and payroll tampering.
The need for investigation
All suspected cases of fraud should be investigated. The fraud detection process should be carried out according to the fraud detection maturity model as indicated below. This should involve the use of both structured and unstructured data.
Figure 1: Fraud detection maturity model (Ernst & Young,2009).
There is a possibility that the employee was indeed tampering with the set internal controls. It is however wise to ascertain that indeed the internal controls were being tampered with. One of the ways of doing this is to set a trap or even tighter controls with fraud detection capabilities.
The main objective of implementing these internal controls is to effectively evaluate the efficiency as well as effectiveness of a given organization. The aim is to maintain the integrity of the company's financial records as well as to ensure that the company is compliant with the set state and federal laws.
How the investigation should proceed
The investigation can be carried out by internal and external auditors after a replacement has been identified for the suspected employee. The investigation should begin by immediately putting the suspected wrongdoer on leave (Bottomly,2010).
Putting the suspected wrongdoer on leave
If the suspect has been identified as in this case, the company (employer) should immediately place him on leave. This would help in removing the suspect from the workplace and thereby preventing any further losses or wrongdoing during the course of investigation. Removing the person from the workplace prevents the person tampering with any e4vidence or even influencing the witnesses. The wrongdoer must be instructed to preserve all the records and never to communicate with his or her co-workers on the issue under investigation. The employer must inform his or her co-workers of the wrongdoer's leave of absence while keeping the details at minimal. It is critical that no information be provided at that particular time to any nosy co-workers because legally the wrongdoer is not yet proven to be guilty. This is done so in order to avoid any cases of defamation should the investigation reveal no wrong doing. Usually, the employer is obligated to pay the employee at the time of administrative leave. Any employee on an unpaid leave must file for a claim for the unemployment benefits.
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