Principles of Auditing

Pertinent Facts

Sacks Fifth Avenue is an upscale merchandiser in New York.

In late 1993, Joseph Fiero accepted a part-time sales position with a Sacks Fifth Avenue store in New York City and was assigned to the Men's Polo Department, a department supervised by Robert Perley.

Within a few months, he was hired as a full-time salesperson at an annual salary of $30,000. A few months later, a new position was made for Fierro, "Clothing Specialist" giving him a 2% salary increase. By early 1996, his annual salary had risen to $46,000 on the strength of strong performance appraisals consistently given to him by Perley.

In late August 1996, Joseph Fierro forged two signatures on a document used to authorize employee sales discounts to obtain a discount he was not entitled to receive. The discount saved Fierro $9.85.

Approximately one week later, two auditors from Saks' Loss Prevention Department suspected that someone had forged the authorization signatures for the related discount and conducted interviews with the employees. Fierro initially denied the allegations but later recanted stating "I realize it was wrong to do this. I exercised poor judgment and I am truthfully sorry for what I did. I realize that something like this is wrong and it will never happen again."

On September 13, 1996, Fierro was dismissed on the ground of violating company policy. Saks charged Fierro with engaging in the following three acts that mandated the dismissal of an employee.

1.Theft of Saks Fifth Avenue or another associate's merchandise, property or services.

5. Forging of a signature.

28. Ringing a transaction under another associate's number or on a dummy date line when doing so results in an unauthorized or unwarranted benefit to the associate ringing the transactions.

During his exit interview, Fierro again apologized for the poor judgment he had exercised. He also expressed disbelief that an "exceptional employee" could be fired for such "trivial transgression".

When Fierro applied for another company, the company insisted to contact Saks. When Fierro contacted Saks, the one who conducted the exit interview, she told him that if asked, she would reveal the circumstances that had led to his dismissal.

Shortly after the call, Fierro filed a discrimination lawsuit against Saks Fifth Avenue with the Equal Employment Opportunity Commission in pursuant to Title VII of the Civil Rights Act of 1964 and the New York Human Rights Law.

Fierro accused Perley of had fired him in retaliation for his decision to stand up to his discriminatory treatment. Fierro also claimed that Perley had occasionally called him "Joey Buttafucco."

Fierro maintained that the discriminatory remarks allegedly made to him by Perley caused him to have low personal esteem and severely damaged his career. Those remarks also reportedly caused him to suffer "permanent psychological damage.

Federal district judge Charles Brieant presided over Fierro's lawsuit against Saks Fifth Avenue and quickly rejected Fierro's claim that Perley discriminated against him. The judge also dismissed the related allegation that Saks fired Fiero for "standing up" to Perley's discriminatory treatment.

Judge Brieant concluded that Saks' dismissal was not a discriminatory act but simply a consistent application of the company's zero tolerance policy for employee theft.

Judge Brieant's words:

1.A hostile work environment exists when the workplace is permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently severe or pervasive to alter the conditions of the victim's employment.

2.At some point, employees mus be required to accept responsibility for alerting their employers to the possibility of harassment. Without such a requirement, it is difficult to see how Title VII's deterrent purposes are to be served or how employers can possibly avoid liability in Title VII cases. Put simply, an employer cannot combat harassment of which it is unaware.

3.Conduct that is merely offensive and not severe enough to create an objectively hostile or abusive work environment - an environment that a reasonable person would find hostile or abusive - is beyond Title VII's purview. Thus, for racist comments, slurs and joke to constitute hostile work environment, there must be more than a few isolated incidents of racial enmity, meaning that instead of sporadic slurs, there must be a steady barrage of opprobrious racial comments.

I.Pertinent Facts

Sacks Fifth Avenue is an upscale merchandiser in New York.

In late 1993, Joseph Fiero accepted a part-time sales position with a Sacks Fifth Avenue store in New York City and was assigned to the Men's Polo Department, a department supervised by Robert Perley.

Within a few months, he was hired as a full-time salesperson at an annual salary of $30,000. A few months later, a new position was made for Fierro, "Clothing Specialist" giving him a 2% salary increase. By early 1996, his annual salary had risen to $46,000 on the strength of strong performance appraisals consistently given to him by Perley.

In late August 1996, Joseph Fierro forged two signatures on a document used to authorize employee sales discounts to obtain a discount he was not entitled to receive. The discount saved Fierro $9.85.

Approximately one week later, two auditors from Saks' Loss Prevention Department suspected that someone had forged the authorization signatures for the related discount and conducted interviews with the employees. Fierro initially denied the allegations but later recanted stating "I realize it was wrong to do this. I exercised poor judgment and I am truthfully sorry for what I did. I realize that something like this is wrong and it will never happen again."

On September 13, 1996, Fierro was dismissed on the ground of violating company policy. Saks charged Fierro with engaging in the following three acts that mandated the dismissal of an employee.

1.Theft of Saks Fifth Avenue or another associate's merchandise, property or services.

5. Forging of a signature.

28. Ringing a transaction under another associate's number or on a dummy date line when doing so results in an unauthorized or unwarranted benefit to the associate ringing the transactions.

During his exit interview, Fierro again apologized for the poor judgment he had exercised. He also expressed disbelief that an "exceptional employee" could be fired for such "trivial transgression".

When Fierro applied for another company, the company insisted to contact Saks. When Fierro contacted Saks, the one who conducted the exit interview, she told him that if asked, she would reveal the circumstances that had led to his dismissal.

Shortly after the call, Fierro filed a discrimination lawsuit against Saks Fifth Avenue with the Equal Employment Opportunity Commission in pursuant to Title VII of the Civil Rights Act of 1964 and the New York Human Rights Law.

Fierro accused Perley of had fired him in retaliation for his decision to stand up to his discriminatory treatment. Fierro also claimed that Perley had occasionally called him "Joey Buttafucco."

Fierro maintained that the discriminatory remarks allegedly made to him by Perley caused him to have low personal esteem and severely damaged his career. Those remarks also reportedly caused him to suffer "permanent psychological damage.

Federal district judge Charles Brieant presided over Fierro's lawsuit against Saks Fifth Avenue and quickly rejected Fierro's claim that Perley discriminated against him. The judge also dismissed the related allegation that Saks fired Fiero for "standing up" to Perley's discriminatory treatment.

Judge Brieant concluded that Saks' dismissal was not a discriminatory act but simply a consistent application of the company's zero tolerance policy for employee theft.

Judge Brieant's words:

1.A hostile work environment exists when the workplace is permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently severe or pervasive to alter the conditions of the victim's employment.

2.At some point, employees mus be required to accept responsibility for alerting their employers to the possibility of harassment. Without such a requirement, it is difficult to see how Title VII's deterrent purposes are to be served or how employers can possibly avoid liability in Title VII cases. Put simply, an employer cannot combat harassment of which it is unaware.

3.Conduct that is merely offensive and not severe enough to create an objectively hostile or abusive work environment - an environment that a reasonable person would find hostile or abusive - is beyond Title VII's purview. Thus, for racist comments, slurs and joke to constitute hostile work environment, there must be more than a few isolated incidents of racial enmity, meaning that instead of sporadic slurs, there must be a steady barrage of opprobrious racial comments.

Saks Fifth Avenue Case

1. In your opinion, was Saks' zero-tolerance policy for employee theft reasonable? Was the policy likely cost-effective? Defend your answers.

2.Did Saks' anti-harassment policy and other related complaint procedure qualify as internal controls? Explain.

3.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.

Read through the case.

Answer the questions 1, 2 & 3at the end of the case thoroughly, withcomplete sentences.

Cite examples within the case and reference items from the chapters we have covered.