Case Study 3.3: Saks Fifth Avenue
13 September, 2009
The Saks Fifth Avenue case study concentrates on the human aspects of internal controls. Of note are Saks’ zero-tolerance policy of employee theft, anti-harassment policy and complaint procedure. Also, the case study highlights control activities in a major retail store. Finally, it questions what an auditor’s role is concerning employee’s work environment. Question #1
In your opinion, was Saks’ zero-tolerance policy for employee theft reasonable? Was the policy likely cost-effective? Defend your answers.
The case presented only one instance when Fierro was caught stealing. Employee theft is difficult to catch and prove. The fact the Fierro was caught tends to lead someone to believe that Fierro probably stole before and/or will do so again. Employee theft is a lot like deer. For every one you see/detect, there is eight or more you do not see. As a result, American business lose between $5 billion to $10 billion per year (Employee Theft, 1984). The zero-tolerance policy might seem harsh, but it has advantages that are hard to calculate. While the policy might have resulted in a top performing employee being fired, it sent a message to the rest of the employees exactly how serious the company is about employee theft. Not all employees’ ethics prevent theft, but the high cost of getting caught is the prohibiting factor. “The key to integrity is ‘accountability’, that is, each person must be willing to put her or his decisions and action in the sunshine” (Cite auditing textbook). Question #2
Did Saks’ anti-harassment policy and the related complaint procedure qualify as internal controls? Explain.
The Committee of Sponsoring Organizations (COSO), consisting of many accounting regulation bodies, issued a report defining internal control as: “Internal control is a process, effected by an entity’s...