The following is an excerpt from a conversation between two sales clerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store.

Jean: Did you hear the news?

Sara: What news?

Jean: Neal and Linda were both arrested this morning.

Sara: What? Arrested? Youre putting me on!

Jean: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rightsthe whole works. It was unreal!

Sara: What did they do?

Jean: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash.

Sara: I guess I never thought of that. How did they catch them?

Jean: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. Theyre going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first.

• Do you think if Linda did not start stealing first, that Neal would have began stealing or do you think because Linda began and he saw her get away with it, he wanted in on the scheme, as well?
• Would you as the manager asked them if they were having any financial problems, given them a chance or would you have just called the police and had them arrested, as the script indicates?
• Does this scenario help you understand why internal controls are important and do you truly believe this could have been prevented given one of the control procedures were in place?
• The statement below describes that $6.3B is lost to employee fraud, how is this possible? Is it a failure of process and procedure or failure of ethical character?
• How important is ethics to you, as a student and future professional?

Employee Fraud

The Association of Fraud Examiners estimates that 5% of annual revenues worldwide or more than $6.3 billion is lost to employee fraud. A common cash receipts employee fraud can occur when employees accept cash payments from customers, do not record the sale, and then pocket the cash. A common cash payments employee fraud can occur when employees bill their employer for false services or personal items.