Pub. 2 2020 Issue 2

17 nebraska society of cpas W W W . N E S C P A . O R G is acceptable because of his or her condition. For example, they believe they are underpaid (rationalization) and will only commit the crime when there is a chance to do so (opportunity). The following cases demonstrate how these three factors allow for employee theft. • David Smith, a former Quest Diagnostics manager, was reimbursed for more than $1.2 million in false expenses through a complex web of deception. Smith set up fake companies, created fake invoices, and turned in fake expense reports. Eventually, the FBI caught on and he was ultimately sentenced to five years in prison. • Barry Webne was hired at Block Communications Inc. as a “theft-prevention specialist.” However, prevention was the furthest thing from his mind. With the help of another co- worker, he wrote checks to himself on company stock. The two were cashing the checks and then destroying the canceled checks that were returned to the company. Webne made false entries in the company’s books to cover his actions. Eventually he was caught. In total, Webne robbed Block of a staggering $1.2 million. • After mastering Ikea’s phone and mail-order system, Suraj Samaroo began issuing refunds to himself for merchandise that customers never really returned. Samaroo would cover up his rampant refunding by altering inventory records. In less than a year, he stole just under $400,000. How Employee Theft Can Be Prevented Fortunately, employee theft can be controlled or prevented with specific policies and management’s commitment to eliminating this workplace problem. Ethics policies and training. Incorporate all aspects of ethics including a code of ethics, an ethical office atmosphere, an ethics consultation committee, and regular personal ethics training programs. Establish harsh punishment for infractions and a rewards system for employees who report any dishonest activity. Mandatory vacation. Make it mandatory for all employees in accounting, human resources, and those who handle cash and merchandise to take vacations each year. Employees should be cross trained to do the job of other employees so there is no lapse in duties as well as a double check of the work of vacationing employees. Internal controls for cash handling. Make sure a daily reconciliation is prepared, comparing the cash receipts log to the daily bank deposits and the cash held in the safe or a lockbox. Any discrepancies not due to deposits in transit should be investigated and the reasons noted on the reconciliation report. Segregation of duties. Assign different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of the related assets to reduce the opportunities for any employee to both perpetrate and conceal the crime. Employee theft in the workplace happens more often than employers would like to think and without a doubt is a financial drain on their businesses. There are many reasons why employee theft occurs and various factors must be present in order for an employee to steal. Many examples exist and there are ways to prevent it. As an employer, know this: the cost of employee theft is too high to ignore. t Ralph J. Evangelista, CPA, MS Taxation, CGMA, is an adjunct professor of account- ing and taxation at Seton Hall University and co-managing member of Frazer, Evange- lista & Company, LLC, CPAs. He can be reached at rje@evangelista.net. Sean Brophy is an associate at Deloitte and pursuing his Master of Professional Accounting at Seton Hall University. He can be reached at sbrophy@deloitte.com . This article was original- ly published in the New Jersey CPA magazine and is used with their permission. Fortunately, employee theft can be controlled or prevented with specific policies and management’s commitment to eliminating this workplace problem.