Suzette Washington financed her college education by working as an inventory clerk for

Bertolini's, a clothing store chain located in the southeastern United States. Bertolini's caters

primarily to fashion-conscious young men and women. The company's stores carry a wide range

of clothing, including casual wear, business suits, and accessories. The Bertolini's store for

which Suzette worked is located a few blocks from the campus of the large state university that

she attended. Except for management personnel, most of Bertolini's employees are college

students. Suzette's best friend and roommate, Paula Kaye, worked for Bertolini's as a sales clerk.

Paula majored in marketing, while Suzette was an accounting major.

During Suzette's senior year in college, Bertolini's began experiencing abnormally high

inventory shrinkage in the store's three departments that stocked men's apparel. Suzette's

supervisor, an assistant store manager, confided in her that he believed one or more of the sales

clerks were stealing merchandise. Over lunch one day in the student union, Suzette casually

mentioned the inventory problem to Paula. Paula quickly changed the subject by asking Suzette

about her plans for the weekend.

"Paula, rewind for just a second. Do you know something that I don't?"

"Huh? What do you mean?"

"Missing inventory . . . shrinkage . . . theft?"

After a few awkward moments, Paula stopped eating and looked squarely into her friend's eyes.

"Suzette, I don't know if it's true, but I've heard a rumor that Alex and Matt are stealing a few

things each week. Polo shirts, silk ties, jeans. Occasionally, they take something expensive, like a

hand-knit sweater or sports jacket."

"How are they doing it?"

"I've heard - and don't repeat any of this now - I've heard that a couple of times per week, Alex

stashes one or two items at the bottom of the trash container beneath the number two cash

register. Then Matt, you know he empties the trash every night in the dumpster out in the alley,

takes the items out and puts them in his car."

"Paula, we can't let them get away with this. We have to tell someone."

"No we don't. Remember, this is just a rumor. I don't know that it's true. If you tell a manager,

there will be questions And more questions. Maybe the police will be brought in. You know that

eventually someone's going to find out who told. And then . . . slashed tires . . . phone calls in

the middle of the night."

"So, don't get involved? Don't do anything? Just let those guys keep stealing?"

"Suze, you work in inventory. You know the markup they put on those clothes. They expect to

lose a few things here and there to employees."

"Maybe the markup wouldn't be so high if theft wasn't such a problem."

Now, there was no doubt in Paula's mind that Suzette was going to report the alleged theft

scheme to management. "Two months, Suze. Two months till we graduate. Can you wait till then

to spill the beans? Then we can move out of state before our cars are spray-painted."

One week following the conversation between Suzette and Paula conversation, a

Bertolini's store manager received an anonymous typed message that set forth the alleged twoperson

theft ring rumored to be operating within the store.

Questions

1. What is the appropriate course of investigative action for the Bertolini's store manager?

2. Briefly discuss internal control activities that might have prevented the apparent theft losses

occurring at Bertolini's.