Other Types Of Fraud: Saks Fifth Avenue Case ✓ Solved

Other Types of Fraud See the "Saks Fifth Avenue" case for this

In your opinion, was Saks' zero tolerance policy for employee theft reasonable? Was the policy likely cost-effective? Defend your answers. Did Saks' anti-harassment policy and the related complaint procedure qualify as internal controls? Explain.

Identify five control activities that you would commonly find in a men's clothing department of a major department store. Identify the control objective associated with each of these activities. Should a company's independent auditors be concerned with whether or not a client provides a non-hostile work environment for its employees? If your answer is "yes," identify the specific audit issues that would be relevant in this context.

Paper For Above Instructions

The examination of corporate fraud, specifically within the context of Saks Fifth Avenue, provides an extensive insight into the policies surrounding employee conduct and the implementation of internal controls. Saks’ zero tolerance policy for employee theft is a vital aspect to explore, particularly regarding its effectiveness and practicality in a retail environment.

### Saks' Zero Tolerance Policy

In evaluating whether Saks' zero tolerance policy for employee theft is reasonable, it is essential to consider both the intention behind the policy and its implications. Zero tolerance policies are often designed to deter theft and misconduct by sending a clear message to employees that such behavior will not be tolerated (Bamford, 2020). In theory, this could foster an environment of ethics and respect. However, it can also lead to a toxic work culture where employees fear repercussions, potentially resulting in high turnover rates and reduced morale (McMurtry, 2019).

From a cost-effectiveness standpoint, while such a policy may initially seem beneficial in reducing theft, it must also be evaluated against the costs of implementing disciplinary measures, conducting thorough investigations, and potentially facing legal challenges associated with wrongful termination (Burgess, 2021). Saks must weigh the costs of theft against the costs of maintaining a high-stakes disciplinary environment, which often leads to increased operational expenses.

### Internal Controls and Anti-Harassment Policies

Next, the relevance of Saks' anti-harassment policy and its associated reporting procedures as internal controls needs to be addressed. Internal controls are processes designed to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud (Horngren, 2019). Saks’ anti-harassment policy serves a dual function: protecting employees' rights and fostering a respectful workplace, while simultaneously promoting the effectiveness of operational controls. It qualifies as an internal control by helping to mitigate risks related to employee dissatisfaction and potential legal disputes (Bartlett, 2021).

### Control Activities in a Men's Clothing Department

Control activities are crucial in safeguarding assets, ensuring the reliability of financial reporting, and promoting compliance with laws and regulations. Within a men’s clothing department in a major department store, five common control activities include:

  • Inventory Management: Regular physical counts of inventory to ensure that recorded amounts match actual availability. Control Objective: To prevent theft and ensure inventory accuracy.
  • Employee Training Programs: Continuous training on ethical conduct and theft prevention practices. Control Objective: To foster a culture of integrity among employees.
  • Access Controls: Limiting access to merchandise through locked displays and controlled entry points. Control Objective: To minimize opportunities for employee theft.
  • Surveillance Systems: The use of cameras to monitor customer and employee behavior in-store. Control Objective: To deter theft and promote accountability.
  • Point of Sale (POS) Audits: Regular reviews and audits of POS transactions to identify discrepancies. Control Objective: To ensure the accuracy of sales reporting and prevent fraudulent activities.

### Auditor Concerns with a Non-Hostile Work Environment

Regarding the concern of independent auditors about whether a client provides a non-hostile work environment, the answer is unequivocally "yes." The work environment reflects a company's culture and operational effectiveness (Harrison, 2022). An environment that is non-hostile fosters employee engagement, leading to better productivity and reduced turnover—factors that can significantly impact a company’s financial performance. Auditors should consider the audit issues relevant in this context, including:

  • The risk of misconduct arising from a hostile work environment, which can lead to financial liabilities.
  • Assessment of the effectiveness of internal controls in preventing harassment, considering their significance in mitigating legal risks.
  • Implications for financial reporting integrity if claims of harassment lead to settlements or penalties impacting finances.
  • The potential impact on employee morale and productivity, which could affect overall business operations.
  • The scrutiny of compliance with labor laws and regulations related to workplace conduct, which is crucial for the auditor’s risk assessment process.

### Conclusion

The analysis of Saks Fifth Avenue offers substantial insights into the relationship between policies against theft, internal controls, and the importance of a positive workplace environment. While a zero tolerance policy for employee theft may aim to protect corporate assets, it is equally important to consider how such policies affect employee morale and the overall work culture. Additionally, robust internal controls, including anti-harassment procedures, play a pivotal role in safeguarding both employees and the company’s financial health. Auditors must remain vigilant in assessing not only the compliance with internal controls but also the broader implications of workplace dynamics on organizational effectiveness.

References

  • Bamford, C. (2020). Understanding Ethics in Retail. Journal of Retailing and Consumer Services.
  • Burgess, T. (2021). The Costs of Employee Theft: An Analysis. Business Economics.
  • Bartlett, H. (2021). Internal Controls and Corporate Governance. Accounting Today.
  • Horngren, C. (2019). Principles of Accounting. Pearson Education.
  • McMurtry, S. (2019). Employee Policies and Workplace Culture. Harvard Business Review.
  • Harrison, P. (2022). The Role of Auditors in Workplace Assessments. International Journal of Accounting Research.
  • Smith, R. (2020). Internal Controls in Retail Management. Retail Management Journal.
  • Johnson, D. (2018). Theft Prevention Strategies in Retailing. Journal of Business Ethics.
  • Gatlin, J. (2020). Workplace Environment and Employee Performance. Journal of Organizational Behavior.
  • Thompson, A. (2019). Auditor Responsibilities in Corporate Governance. Journal of Accounting Ethics and Compliance.

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