After Catching a Thief: Internal Controls in a Small Business
This decision-based critical incident describes Karl Gibson’s worry about how to prevent theft and other fraud at International Retail, LLC (IR). Unfortunately, Karl has just caught his online salesperson, Larry Felding, stealing company inventory and selling it on a personal website. After firing Larry, Karl is left wondering how this blatant fraud was able to happen under his watch, and what he needs to do to prevent it in the future. However, Karl’s company is small and tight knit. Whatever changes occur, he doesn’t want to destroy the family-like culture that exists, nor does he want it to seem like he does not trust his partners or employees.
After completing this assignment, students will be able to:
1. Describe basic internal inventory control procedures
2. Comprehend why small, family-owned businesses may not have inventory control systems that allow them to monitor employee actions
3. Debate the benefits and drawbacks of monitoring employees from a legal, cultural, and cost/benefit perspective
This incident is appropriate for use in organizational behavior, human resource management, family business, small business, managerial accounting, business law, and operations management courses. Major issues in the incident are internal controls, fraud prevention, culture, and employee monitoring policies. Course discussions will want to clearly analyze the implications that both the absence and creation of internal controls have on fraud prevention, company culture, and daily operations. Class discussion should also examine the ethics and legality of employee monitoring policies. An epilogue near the end of the teaching note explains Karl’s subsequent actions to track inventory and avoid fraud.