Question 1 - Management Performance System

Case:

You are the owner of a local department store in a small town. Many of your employees have worked for your company for years, and you know them and their families very well because your business is relatively small and because you know your employees so well, you haven't worried about establishing many internal controls. You do set a good example for how you wish your employees to work, you are actively involved in business, and you provide adequate training to new employees. One day you become suspicious about an employee at a checkout desk. You fear that he may be stealing from the company by altering the days total at his register. He has worked for you for 15 years and he has always been honest and reliable. After several weeks of investigation, you discover that you your fears are correct - he is stealing from the company. You confront him with evidence, and he admits to stealing $25,000 over several years. He explains that at first, he stole mainly to pay for small gift for his wife and young children. But then last year, his wife lost her job, they had another child, and he wasn't sure how to pay all the bills.

1. What elements of fraud are present in this case?

2. How might you have detected this fraud earlier or prevented it from happening?

3. How will you approach your employee interaction and relationships in the future?

4. Do you feel a better system of internal controls such as surveillance cameras and an improved computer system is necessary or justified to prevent future frauds? What other internal controls can you suggest preventing this from happening again?