“Checker needed up front.”

Kirby Jacobson placed a final can on the shelf in front of him and then turned and headed for the checkout stand at the front of the store. Kirby worked for Troberg Stores, a chain of small grocery stores located in a cluster of small towns in northern Minnesota. After graduating from high school in 1980, Kirby accepted a job as a stocker with Troberg’s Sixth Street store in his hometown. Fifteen years later, Kirby had risen to the position of assistant store manager. 

Although technically a management position, Kirby’s job required him to be a jack-of-all-trades for the Sixth Street store. He worked as a stocker and checker when needed, prepared purchase orders for three departments, closed the store several days per week, and trained new employees. Kirby was a quiet and introverted individual who was known for his punctuality and work ethic. Co-workers always called Kirby first if they needed someone to fill in for them.

“I’ll help you over here at register three, Ma’am,” Kirby said politely to a young woman nearly hidden behind an overloaded shopping cart. The Sixth Street store had four checkout stands. During the day, the store’s three full-time cashiers staffed checkout stands one through three. Kirby, the two other assistant store managers, the produce manager, and the dairy manager served as relief checkers. Relief checkers typically manned register four. On this afternoon in early May 1995, Kirby opened checkout stand number three because the cash register in checkout stand four was being repaired. Violet Rahal, the cashier assigned to register three, had taken her lunch break a few minutes earlier at 1 p.m. After checking out several customers, Kirby closed register three and resumed his stocking duties. Thirty minutes later, Violet Rahal returned from her lunch break. 

Because she noticed that several items at her work station had been rearranged, Violet asked Roma Charboneau, the cashier at register two, if someone had used register three during her lunch break. Roma replied that Kirby had checked out several customers at register three. Violet then counted her cash till. Then she counted it again. Each time, she arrived at the same total. Her cash till was short by \($210.\) Violet immediately reported the shortage to Angelo Velotti, the store manager. Cash shortages had been a recurring problem for Troberg’s Sixth Street store. Over the previous 12 months, Angelo Velotti had reported four cash shortages, each exceeding \($200,\) to the owner of Troberg Stores, Elliott Paulsen. The cash shortage Violet Rahal discovered was the first that could be tracked to a specific cash register and a specific time of day.

When Violet reported the missing \($210\) to Angelo Velotti, the frustrated store manager slammed his fi st on his desk. “What is going on here?” he shouted.

“I counted my till when I left for lunch. Just like I always do,” Violet responded timidly. 

“Then, when I got back—”

“Violet, I’m not accusing you. But this has to stop.”

A shaken Violet regained her composure and continued. “When I got back, I noticed that someone had been using register three. Roma said that it was Kirby.”

“Kirby,” Angelo muttered under his breath in disgust.

“So, I counted my till. Twice. Each time, I came up short by \($210.”

“Stay\) here, Violet. I’m getting to the bottom of this right now.”

Velotti marched to aisle four where Kirby was stocking and brusquely told the assistant store manager to come to his office. When Kirby asked why, Velotti snapped, “You’ll fi nd out soon enough.” Velotti’s frustration stemmed from mounting pressure that Paulsen was applying on him to tighten the internal controls of the Sixth Street store. Each time Velotti reported a cash shortage, Paulsen exploded. “We’re barely making ends meet as it is!” Paulsen had bellowed on the previous occasion that Velotti had reported an apparent theft of cash.

Increasing competition from nationwide grocery chains had been slicing away at Troberg’s revenues and profi ts for several years. Residents of the small towns in which Troberg’s stores were located often drove to metropolitan areas to take advantage of the lower prices and greater variety of merchandise offered by the large grocery chains. By the spring of 1995, Troberg’s gross profi t percentage hovered at an anemic 10 percent, meaning that the Sixth Street store needed to produce \($2,000\) of revenues to replace the gross profi t lost due to a \($200\) theft. The gross profi t percentage for comparable grocery chains ranged from 18 to 25 percent.

At the same time Paulsen was demanding that Velotti eliminate the Sixth Street store’s theft losses, he was slashing the store’s operating budget. During the past year, Velotti had trimmed the store’s payroll from 30 to 24 employees. Velotti realized that reducing the store’s staff during each work shift and assigning more job responsibilities to each employee provided dishonest subordinates a greater opportunity to take advantage of the business. But when he tried to make that argument to Paulsen, the owner refused to listen. “Doesn’t matter how many or how few employees you have since honesty is a part of everybody’s job description,” Paulsen had once barked at Velotti.

After returning to his office with Kirby Jacobson in tow, Angelo Velotti told Violet and Kirby that he was calling the local police department. Velotti asked the police department to immediately dispatch an officer to the Sixth Street store to investigate the apparent theft. Next, Velotti telephoned Elliott Paulsen. As expected, the unpleasant news detonated Paulsen’s notoriously quick temper. A few weeks earlier, Paulsen and Velotti had spent several hours studying the previous four thefts of cash at the Sixth Street store. Three of those shortages had been discovered at the end of the day when an assistant store manager prepared the daily cash deposit. On each of those occasions, the assistant store manager who discovered the cash shortage had been Kirby Jacobson. The fourth shortage occurred at register four one busy Saturday afternoon. Kirby had worked as a relief checker during the shift in which that cash shortage arose, along with three other individuals. Since the exact time that the cash shortage occurred could not be pinpointed, the shortage could not be traced to a specific individual.........

Questions 

1. The management of Troberg Stores was unfamiliar with the EPPA. Should a business’s internal control process address its need to comply with all relevant state and federal statutes? Or is such compliance beyond the scope of an entity’s internal control process? Defend your answer.

2. The legal opinion on which this case is based did not elaborate on the internal controls Troberg Stores had in place for its cash processing activities. Visit a local grocery store and unobtrusively observe one or more checkout stands.
Develop a list of policies and procedures apparently used by the store to maintain control over its checkout stand operations. For each of these items, identify the apparent control objective.

3. What types of duties should typically be segregated or separated across employees of a small business? What measures can a small business implement if adequate segregation of duties is not economically feasible?

4. What ethical responsibilities do a business’s managers and owners have when they suspect an employee of theft? Should such ethical considerations be integrated into a business’s internal control policies and procedures? Explain.

5. Do you believe the EPPA improperly limits retail businesses’ ability to investigate and prosecute potential incidents of employee theft? Defend your answer. Identify other laws and regulations that have potential control implications for retail businesses.