Auditing

Kirby Jackson began working for Troberg Stores, a chain of small grocery stores in northern Minnesota, when he first graduated high school. Jackson worked his way up to assistant manager after many years. Jackson was known for his punctuality and honesty by other Troberg employees.

The Sixth Street store, where Jackson worked, experienced several cash thefts during Jackson's employment as assistant manager. All five thefts took place while Jackson was on duty. Three of the cash thefts were discovered by Jackson when he made the deposit at the end of the work day, and one while he was working as a back-up cashier.

Jackson was suspected of the theft and asked to take a polygraph test by the police. Jackson agreed and the polygraph test came back showing that Jackson had lied. Instead of firing Jackson, Troberg management decided to demote him to stocker and allow him to keep the same pay and benefits.

Jackson was treated unfairly by the employees at Troberg, making his work environment unpleasant. It got so bad that Jackson eventually quit the store. Two years later, Jackson filed a civil complaint against Troberg Stores, the store's owner, and the store's manager. Jackson claimed that Troberg stores violated his civil rights under the EPPA. The judge ruled in Jackson's favor in three out of the four allegations. Troberg Store's unfamiliarity with the EPPA resulted in a large settlement for Jackson.

Questions:

1. The management of Troberg Stores was unfamiliar with the EPPA. Should a business's internal control process address its need to comply with all relevant state and federal statutes? Or, is such compliance beyond the scope of an entity's internal control process? Defend your answer.

A business's internal control process should address the need to comply with all relevant state and federal statutes. As seen in this case, ignorance about the law can lead to large penalties. Such compliance is not beyond the scope of an entity's internal control process because certain guidelines and policies can be set up to aid employees. For example, resources should be available for employees to be able to access current information regarding state and federal statutes.

Policies and procedures should be set up for employees to follow when situations occur. A legal contact should also be available when employees and management are unfamiliar with proper procedures and actions. It is the company's responsibility to protect itself from situations and lawsuits like the one that occurred in this case.

2. The legal opinion on which this case was based did not elaborate on the internal controls Troberg Stores had in place for its cash processing activities. Visit a local grocery store and unobtrusively observe one or more checkout stands. Develop a list of policies and procedures apparently used by the store to maintain control over its checkout stand operations. For each of these items, identify the apparent control objective.

Ð'* At the end of the day, management reconciles cash received with register totals to verify accuracy and make sure there is no cash missing.

Ð'* Control Objective: Require daily reconciliation of cash receipts records with bank deposit slips.

Ð'* Cashiers are not responsible for making deposit slips or entering cash receipts. They are only responsible for their drawers.

Ð'* Control Objective: Separate responsibility for handling and recording cash.

Ð'* Cashiers must ask management for cash if they need change. It is also recorded every time the cash drawer is opened and many registers require an authorization code that identifies the cashier.

Ð'* Control Objective: Establish physical barriers over cash.

Ð'* All cash is handled at the cashier stands in grocery stores. Customers must check out in one centralized location.

Ð'* Control Objective: Establish cash receipts function in a centralized location.

3. What types of duties should typically be segregated or separated across employees of small businesses? What measures can a small business implement if adequate segregation of duties is not economically feasible?

Segregation of responsibilities helps to prevent any one