- Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
- Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
- Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
- As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
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Sean Patrick Walsh says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
Mr. Cash had the opportunity to commit the fraud because he worked on the assembly line and had access to all the parts that were used to create a Cadillac. He also worked there for 20+ years which gave him the time to take everything needed to build one piece by piece so GM wouldn’t notice. It helped that he was able to fit most items in his lunch box, and those items too big to could fit in an accomplice’s motor home.
Mr. Cash had incentive to commit the fraud because it wouldn’t cost him a dime to carry the fraud out and get the car he wanted. He also put the pressure on himself to drive around in style, drive everybody wild, have a one-of-a-kind, and the only one in town. Since he always wanted one that was long and black he felt the need to do so as well.
Mr. Cash easily rationalized the fraud to himself because he believed he’d have it all by the time he retired since he planned to work there for 20+ years. That statement makes the argument that he felt he deserved it and ties in with he built them, didn’t own one, and held his head in shame for it. He never considered himself a thief, so he believed GM wouldn’t miss just one little piece; especially if he dragged it out over several years.
Brou Marie Joelle Alexandra Adje says
good analysis Sean.
I also think that he had opportunity to commit fraud because not only he was a trusted employee but also he had “connection”. He had friends on site who helped him as well. I don’t think that he could have done this alone.
you are also right on the incentive part. I mean he didn’t pay anything, and for him GM wouldn’t even notice part missing so it wasn’t a big deal either. He could have an awesome car for free. Who wouldn’t be tempted?!
Victoria A. Johnson says
Great summary Sean and I agree with you Brou. He was a trusted employee and having that kind of rapport from others within the company made it easier to commit the fraud over the course of 20 years without anyone suspecting..
Seunghyun (Daniel) Min says
Brou,
Great point. ‘Connection’ is always an important fact to consider when it comes to a crime. Personally, I have a great example of how people utilize a connection to commit a crime. When I was working for a grocery store, there was an incident happened that one employee was dragging out fruits our of the store. He has a connection in the store with another employee who worked in the produce department. So whenever the produce worker went outside to dump the trash, he also brought out fresh fruits as well. And the employee who wanted the fruits drove his car near to the dumpster. He put those fresh fruits in his car and took them to his house. He was able to commit the crime because he had a great connection with the employee who worked in the produce department.
Sean Patrick Walsh says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
First, if feasible, I would institute an access control policy and segregate portions of the assembly process and line physically. By separating the various assembly processes, and the personnel who conduct them, it would limit physical access to all parts needed to assemble a product. Separating the processes physically could also possibly limit interaction between employees from removed assembly processes that would help mitigate collusion to commit fraud. Limiting access through segregation of the processes and assembly could have a residual effect on employees to commit fraud too just from knowing that they would look out-of-place in areas they aren’t normally supposed to be.
Second, again if feasible, I would institute a policy and program to track each part used at each point in the assembly process. The policy would “check out” or “issue” parts to the employee doing each process. By associating each part for each process with a specific employee would create accountability. That accountability through the process would help prevent theft/fraud since employees would know they would be associated by name to each part or piece issued to them for use in assembly. Any missing part requiring the re-issue of another part would immediately raise a red-flag to possible theft/fraud in an area of the assembly process.
Brou Marie Joelle Alexandra Adje says
Sean, I would think that every pieces are store at the same location so segregating portions of the assembly process wouldn’t necessarily prevent inventory fraud. Right?
Sean Patrick Walsh says
It would depend on the specific business more than likely. Business A may store every piece in the same building for instance while Business B stores parts in separate locations to streamline issuance (as in the pieces needed for specific assembly steps are stored closer to the locations where those steps are accomplished to cut down on lost work-hours wasted going longer distances to get more pieces). More importantly, and maybe I should have been more clear, by segregating the assembly processes physical (i.e. requiring access to different parts of an assembly plant to conduct different assembly steps) would separate the workers’ access to just the parts their process required. The workers would not have access to each and every part required to assemble an entire product fully. Now, the personnel who issue parts from a single location would have access to all parts, but the personnel who issue parts from segregated storage locations would not have access to all parts. Does that clarify it better?
Brou Marie Joelle Alexandra Adje says
oh okay.
yes it does! thank you.
Adopting business B’s method is a better way to prevent inventory fraud obviously.
Sean Patrick Walsh says
No worries. Thank you for bringing that question up though so I had the opportunity to work on conveying an idea more clearly.
Magaly Perez says
Great control Sean! I really liked the idea of having designated process: “By associating each part for each process with a specific employee would create accountability. That accountability through the process would help prevent theft/fraud since employees would know they would be associated by name to each part or piece issued to them for use in assembly. Any missing part requiring the re-issue of another part would immediately raise a red-flag to possible theft/fraud in an area of the assembly process”.
By implementing such a policy most definitely creates a realm of accountability! This process points out directly the culprit of the fraud by raising the red flag. I didn’t think of associating each part of the process with a specific employee, rather just the inventory. Good job!
Sean Patrick Walsh says
Thank you! Our QA/QC program in the Navy was run in that way. Any system that was covered under the QA program had to have specific parts supplied for repair and replacement. Those parts could only be stored in a specific location before issues, only issued to qualified personnel, and stored in specific “controlled material lockers” that were audited twice a year at a minimum. Each piece had various pieces of associated paperwork to track the material from “cradle to grave” and each piece had to have a label attached to it denoting whether or not it was a “good” part/piece or a “rejected” part/piece. The program and method worked very well, created accountability and integrity, but is obviously not feasible in every scenario due to the added costs.
Magaly Perez says
Yeah, I agree Sean. In theory, every company would implement precautionary measures like the Navy. But in some instances the equipment is most definitely worth this extra measure that is for sure. Once again, thanks for the insight and idea of such a control.
Deepali Kochhar says
Great point Magaly. Defining the return on investment is very important. Sometimes such frauds occur due to this reason only that the cost needed to put in security controls doesn’t justify the cost the of product.
Seunghyun (Daniel) Min says
Rightly pointed out Deepali. Organizations/companies always count on the ROI factor. Even though you have implemented the world greatest security system by investing a lot of money, if you are not making any profits over your investment on the security system, it is worth nothing. For the security perspective, it is hard to measure the ROI because the security itself is intangible. To that end, as we discussed earlier in this class, it is important to quantify the security measures and then we can properly calculate our ROI in implementing the security systems.
Paul Linkchorst says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The fraud triangle consists of three parts; Pressure, Opportunity, and Rationalization. Throughout the song, the environment described several areas that would be favorable to fraud. The first area that came to my mind was the pressure portion of the fraud triangle. Cash states that he had always wanted a long black car and it was to the point that he would hang his head and cry over not having one. This demonstrates that Cash was under a deep pressure to have the car that he wanted, to the point that not having it was affecting his attitude. Likewise, there was an area of rationalization. Later in the song, Cash sings that “I never considered myself a thief, but GM wouldn’t miss just one little piece, especially if I strung it out over several years”. In this, Cash is rationalizing that his actions had no effect on GM or those around him. Lastly, I would say that there was the opportunity to commit fraud due to the lack of oversight. Cash said he was able to take parts in his big lunchbox which might be easily unnoticed. However, Cash sang, “the big stuff we snuck out in my buddy’s mobile home”. If there are no monitoring of products such as the engine or trunk, then many employees would have had the opportunity to steal. I think overall, the three areas of the fraud triangle were present in the GM environment which made it more susceptible to fraud.
Brou Marie Joelle Alexandra Adje says
You are absolutely right Paul. Not only Johnny was under pressure to please other with his unique car, but also had the mean to do so, for free.
There was definitely a lack of monitoring in this case, which set the opened the door “easy” crimes.
Sean Patrick Walsh says
The mobile home used for the bigger pieces part of the song stuck out to me too. It showed how collusion allowed the fraud to take place, at least parts of the fraud to “large” for one person to carry out themselves. That is many times an integral part of fraud, especially in environments where there are controls to try and prevent/detect fraud. If the right people collude to commit fraud they can mask and hide fraudulent acts because they’re in positions to both commit the fraud and to hide it afterward.
Paul Linkchorst says
Hi Sean,
You bring up a really interesting point about collusion. As IT auditors, one of our responsibilities (if not main responsibility) is to test internal controls specifically around the IT systems. With that being said, internal controls have one significant “shortcoming” which is that they are prone to collusion. Whether it be authorizations or segregation of duties, if individuals can collude than they can effectively bypass internal controls without much effort. This makes fraud a harder topic to pinpoint especially when performing an audit. I linked an article below that goes into detail about collusion and internal controls. In respect to Cash and his collusion, I think it would be hard to set up an internal control that would prevent him from colluding to get the pieces.
Link: http://www.kellogg.northwestern.edu/accounting/papers/novoselov.pdf
Seunghyun (Daniel) Min says
Paul,
Thank you for bring up the concept of the collusion. I absolutely agree with you that Mr. Cash was not able to get away from internal controls (if there were any) for a long time without a help of other employees. He had been dragging the parts from the assembly lines over a long period of time, and in the end, he wasn’t caught and built his Cadillac. In Korea, there is a saying that “if your tail is too long, someone will step on it.” That is, he was taking the parts out of his work for a long period of time, and someone should have caught him doing that.
Joshua Tarlow says
Your point about collusion made me consider it from a different perspective. Even if he didn’t need or receive any help, other employees could still be complicit. He stole a lot of parts over a long period of time, and more than likely someone would see him placing one in his lunchbox or another incriminating act. Even without proper audits or controls, other employees could have allowed it to occur even if not intentionally.
Sean Patrick Walsh says
I didn’t even consider that angle of collusion, so that’s a great observation. I’m sure a lot of people have seen somebody use company resources at work for personal matters, or even take company resources home rationalizing their minor cost to replace for the business. Thanks for bringing that aspect up.
Paul Linkchorst says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I were the operations manager, I would implement a control that measures the number of completed GM vehicles to the number of major components to a car. Theoretically, in order to finish 1 GM car, then 1 GM engine should be used. An engine more than likely than not will fit into the vehicle unlike nuts and bolts which might have scraps or broken pieces. Therefore, a daily reconciliation between the number of engines (other major parts should be used too) and the number of completed cars against the engine inventory amount will identify the number of misused or stolen parts. On top of this control, physical controls should be used to make sure that the major vehicle components, such as engines, are appropriately locked in a safe storage area. If the Order to Cash process is secure, especially with making sure the inventory count is correct, then this control can be useful in preventing fraud such as theft of GM car components. One could argue that an employee can still commit fraud, however, by monitoring major components of a car the financial portion of the risk is greatly reduced.
Said Ouedraogo says
Paul,
Nice post. However, one car can use more than one major component. In your example “in order to finish 1 GM car, then 1 GM engine should be used”. What if the engine is defective? The employee should be able to replace a component if it’s not working.
What they can do as you said, is to do daily reconciliations where the employees will explain for example why he/she used more than one engine for one car.
Paul Linkchorst says
Hi Said,
Exactly. Not only can employees explain why he/she used more than one engine, an operations manager can then go inspect the engine(s) that did not fit the bill for each day. This can serve two purposes. The first purpose is, as we discussed, to prevent fraud from occurring and making sure that no one is stealing. The second purpose is to identify what piece is wrong and possibly go back and correct that issue on the assembly line. If GM were making their engines, then this exercise would serve almost like a quality control check and possibly make corrections to prevent future defects.
Paul Linkchorst says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
One area that comes to mind of the OTC process that will be different for domestic and international companies would be around foreign exchange risk. Foreign exchange risk is the risk that the currency exchange rate can have an effect on the value of a transaction or investment. In this case for the order to cash process, a sale for a product can be made, but by the time the payment for the transactions has been received, a loss can be had on that transaction. While there does not seem to be to be much published online about how controls can mitigate foreign exchange risk, a control that could be used is to utilize forward exchange contracts for sales that reach a certain threshold. Essentially a foreign exchange contract is an agreement to which a certain amount of foreign currency will be bought on a specific future date. While this might not mitigate foreign exchange risks on all sales, large sales can mitigate the risks by using these contracts.
Magaly Perez says
I agree with you Paul. Cash flows will be dubbed in different currencies, and the effects of currency devaluations must be addressed in all financial analyses risk. Unlike their domestic financial management counterparts, multinationals are subjected to exchange rates that differ based on inflation rate in foreign countries where they operate. High inflation will result in currency decline, making it difficult and unpredictable to operate profitably. Additionally, the process of exchanging currencies when transferring money between countries can be expensive and inconvenient.
Said Ouedraogo says
Paul,
You are absolutely right. Most international companies charge different prices according to their location. In fact, this control allow them to mitigate the foreign exchange risk. For example, Apple charges the iPhone 7 at 769€ in France, $899 (CAD) in Canada, and $649 in the US.
Fangzhou Hou says
Great example of the new iPhone 7 Said. Indeed, the foreign exchange risk may cause the changes in products’ current price, and I think there are more reasons to cause the different price of the same product in different countries. For example, the import tariff policies in different countries is different, and this may also significantly affect the price of products.
Paul Linkchorst says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Two less obvious inventory control measures that come to my mind are the tracking of scrap material and surprise inventory counts. For the tracking of scrap material, this helps the organization as it identifies materials that are still usable and those that are not. From a financial reporting standpoint, this is necessary are you need to accurately disclose the amount of inventory the company has. From a business standpoint, this is necessary as it helps in analyzing the waste of the company which identifies where to improve processes that are causing the waste as well as the control helps identify if the company needs to purchase more materials. Therefore, a control around waste should be implemented that has procedures about measuring the amount of scrap before disposal.
The other less obvious control that came to my mind was performing regular inventory checks for inventory that is obsolete or unused. Much similar to the scrap material control, the aids in accurately disclosing the correct amount of material as well as provides information for the business to make decisions of off. A company can implement a monthly inventory review and identify that if inventory is over a certain number of months old, then that inventory should be sold or discarded to provide storage area for new inventory. Therefore, a control like this can help a company manage its current inventory better and give more information for better decision making going forward.
Brou Marie Joelle Alexandra Adje says
Surprise inventory count is a good one! In fact, employees won’t expect it, which makes it easier to detect fraud. If a fraud is detected once, chances are that it will not happen again because they would be scared to be caught. Similarly, if employees know that there are surprise inventory counts once in a while, the idea of stealing shouldn’t even cross their mind unless they count on “luck”.
Wenlin Zhou says
I strongly agree with you, the surprise inventory count is an effective way to detect fraud. Your employees cannot prepare the inspection. This way can help you to easily find and control fraud.
Yu Ming Keung says
Hi Paul,
Great post, the surprise inventory count can give employees deterrence so that they would be afraid to get caught. And I strongly agree with the measure of tracking of scrap material, which could help the organization identify which part of its processes needs to be improved in order to create less waste. This control could be beneficial for the organization in the long run because it creates less waste as well as help organization same money.
Paul Linkchorst says
Hi Yu Ming,
When I wrote out my answer I don’t remember having deterrence in mind for the surprise inventory count. You are right, this could prevent those working with inventory from stealing or damaging any products. However, segregation of duties plays a big role in maintaining inventory. If the warehouse workers were the one’s counting the inventory when it was received, they could easily just record that 1 or 2 weren’t received and walk out with those products. Therefore, receiving inventory and storing inventory should be two separate processes with their own staff.
Deepali Kochhar says
Great point on scrap inventory Paul. I recently read a news that companies are now working on following such controls. Some of the items which remain unsold and are about to reach the “best before” dates will be tracked. All such items will then be sold for free. This will avoid the waste of product and people in need will be able to use it as there are such products which don’t expire but are best before a certain date. But after their best before date the company cannot sell those. For this fact in spite of sending them to waste such controls can help in utilization of products.
Paul Linkchorst says
Hi Deepali,
Interesting point about donating the scrap metal to a good cause. Maybe this will encourage or motivate employees when performing their duties for this control since it is benefiting those in need and not seen as a “waste”. Likewise, companies might change their policies on how long it keeps obsolete items since these items will be put to better use.
Abhay V Kshirsagar says
Surprise inventory audit can actually yield results that the auditors might not get if they announce their visits. Inventory valuation fraud comes to my mind that the management with an intention to fraud uses to manipulate the numbers. The way it works is that if an organization has multiple inventory warehouses, and the management knows where auditors are going to be at a specific day, the management can then conceal shortages at places that are not scheduled for a visit.
So in this case, a surprise inventory audit should be proven effective.
Brou Marie Joelle Alexandra Adje says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
This video is actually a song in which the singer (johnny) leaves his home in Kentucky to work in an assembly line at General Motors (GM) in Detroit, MI. The first year he participated in the creation of a Cadillac. He then gradually developed an admiration for the car. He wanted it decided, but couldn’t afford it nor steal it. So he had the “genius idea” to steal auto parts every day one at a time over several years. He hid new pieces in his lunch box every day until he obtained what he thought were all the necessary pieces to build his own Cadillac. So with the help of his friends they attempted to assemble the parts. Unfortunately, because he stole pieces in different year, the parts did not necessarily match (in that case the engine and the transmission were not from the same year). This did not stop them from building a very unique car which was the center of attention as he wanted.
Using the Fraud triangle, I can tell that the incentive came from the fact that eh worked on the cadillac, admired it and wanted one as well. He just had a desire for a status symbol that would make people talk about him in the street.
There was opportunity for fraud because he was a trusted worker, not doing anything “obviously” different in the assembly line every day, hence people could not be suspicious at all. And quite frankly who would think that someone would steal piece of a car over several year to actually build it at home?
Finally, he told himself that it was a big deal for GM. They wouldn’t miss a piece, especially if it was done over several years. He believe that the crime he committed was not actually one.
Brou Marie Joelle Alexandra Adje says
2) Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I was the operations manager, I would use detective controls to mitigate employees theft and fraud. In order words, I would manage inventory in a way that the Physical inventories would be done at least once a year by individuals who are not responsible for inventory records and who do not work in the same assembly line. So that chances that they are friends with Mr. cash for example, are limited. I would also install security devices to monitor inventory as well if possible.
I would also limit the access to auto parts pieces and install security camera everywhere that would be permanently checked. Even if they are not regularly checked, just by installing them chances that employees will steal the good are very low.
Magaly Perez says
Alex,
Like you, I thought implementation of a detective control would be the most beneficial from the operations manager’s perspective. Not only would the manager be able to see that theft and fraud was occurring, but given a chance to punish/ apprehend the culprits as well as mitigate the risk. These employees would have been blindsided by such a control. As for the implementation of security cameras, that is a great addition.
Deepali Kochhar says
Brou,
Don’t you think getting inventory check with people who are not doing it regularly can again be a reason for mistakes. Rather we can set up an isolated inventory check department who are not a part of any work force in the organisation. This will help in a better way to maintain the integrity.
Magaly Perez says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The ‘One Piece at a Time’ video explains the fraud triangle model. The three factors include: 1.Perceived unshareable financial need, 2. Perceived opportunity and 3. Rationalization. These factors cause someone to commit occupational fraud. These 3 concepts are prevalent in the premise of Johnny Cash’s song. The song depicts Cash’s yearning for a Cadillac while working in the assembly line at General Motors.
Johnny knows that he cannot afford the car or directly steal the car from his job; he decides that he will just steal the auto parts every day on the job with his friends for several years, in order to build his own Cadillac. Mr. However, once Johnny and his friends have the pieces to create their very own Cadillac; they notice the pieces didn’t quite coincide and end up with their very own unique Cadillac. Jonny and his friends were able to rationalize this fraud by stating that this large profitable company would not miss the pieces they gradually stole.
From the song, you can clearly see the Fraud Triangle. He wanted the car and knew he couldn’t afford it, so he used his position within GM as an opportunity to steal from the company to obtain the product. In this instance, the environment was favorable for Fraud. He worked for GM on the assembly line and like most companies they believe their employees would have integrity and therefore be a trusted employee. He didn’t raise any suspicions throughout the years, the measure he took by stealing parts over the year would not be easily picked up by management or others.
Binu Anna Eapen says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
Ans: Fraud Triangle also know as Cressey’s hypothesis explains the factors that result in someone committing occupational frauds as pressure, perceived opportunity and rationalization Intersect.
Johnny was working in Detroit in assembly line of the car company Cadillac where he was in department that assembled the wheels. He would watch every day the cars that drove by and this made him want a car for himself that was unique and different from others.
1. Pressure: He had always wanted a car worth hundred grant. And now he was placed in an area where there were he saw them everyday and which made him envy and want a car more than ever before. And as he didn’t have that much money with him he felt pressurized to commit fraud.
2. Perceived Opportunity: In this company they were allowed to carry their lunchboxes in and out and no one checked what was in it, so he would be able to take smaller parts like nuts and bolts in them. The company did not maintain any record of the parts and so even if he takes some no one would notice especially as it would be over a period of few years. Also for the bigger parts like fuel pump, engine they would be able to carry it in his friend’s mobile car.
3. Rationalization Intersect: He had planned to take this parts in a period of several years and he rationalized with the fact that as he was doing little by little everyday, it would amount to nothing for the company he wasn’t really taking much and so he wasn’t stealing.
All this factors made him commit the fraud.
Magaly Perez says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I was to assume the position as the Operations Manager in Johnny Cash’s song, the number 1 key control I would implement would be making sure the assembly line parts were counted for and solely designated for an exact number of cars. This detective control would be implemented by my ability to manage the physical inventory and combat theft from the assembly line. Not only would it combat the theft, the employees would be made examples of. In the case of ‘One Piece at a Time’ video, the culprits would have known that management picked up on this and would be deterred to continue.
Wenlin Zhou says
Absolutely, I agree with you. The company can segregation of duties to monitor the inventory. Some employees took responsibility for purchasing parts, and others can take charge for the physical counters.
Yulun Song says
you are correct! if the parts have been counted and designed for an exact number of cars, workers will reduce to steal parts because each part has a direct way to go. If the number of parts is wrong, the company will inspect it. Your way reduces the opportunity to steal and increase internal control!
Binu Anna Eapen says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.’
Firstly I would have a control that would have all parts properly accounted for and the inventories are maintained well.
Secondly a control should be in place to monitor what goes in and what comes out from the company. That security checks are in place when an employee comes in and out of the work place.
Mansi Paun says
Good thinking Binu, I too was of the opinion of putting in monitoring controls through the plant and introducing start of the shift and end of shift inventory checks. Apart from these I can think of having metal detectors or scanners(like the ones at Airport security checks) being used to have the personnel scanned during entry into and exit from the factory floor.
Deepali Kochhar says
Great point Mansi. In my organisation we had a scanner installed at the entry to check personal electronic devices such as hard drives, pen drives etc so that no data breach can occur. Metal detector can work in the way for a car making(manufacturing) firm. This will help in stopping such kind of theft to a great extent.
Sean Patrick Walsh says
There was a case before the Supreme Court of the United States recently about security checks employees had to go through at the end of work shifts at warehouses for Amazon. The workers, after clocking out, were forced to wait in long lines to go through security check points before exiting the warehouse. These check points were instituted to prevent theft. Well employees felt they should have been paid during their time in the lines since the time often reached or exceeded 30 minutes in length. The workers ultimately lost the suit, but it definitely raises the awareness that controls have to be carefully considered during development and before deployment to ensure they don’t create more problems than they solve.
Said Ouedraogo says
Sean,
You are absolutely right. In my previous post. I said that I would install security cameras to monitor employees. This can bring more problems than solutions. In fact, in psychological point of view it can decrease employees productivity because they will be anxious.
Also, as you said it takes time to check everybody; which raises questions like “Should we paid employees for the waiting period?
Yu Ming Keung says
All good points!
I agree with Said, Instead of employee bag check, installing security cameras could prevent employees theft. Like Amazon, Apple was sued by a class representing 12,000 employees, arguing time spent complying with an “Employee Package and Bag Searches” security policy amounted to compensable overtime under the Fair Labor Standards Act.
Ultimately, the workers lost the suit. Some employees also reviewed that they were being treated like criminals because of that policy in a psychological perspective.
I think conducting employee background check before hiring to ensure the employee’s moral standard could be helpful in addressing the risk.
Paul Linkchorst says
Hi all,
To add to the conversation, I don’t think a security checkpoint will be too effective in terms of preventing fraud in the case of GM and Cash. For most of the car parts, anything of value will be too big and heavy to move by person without some form of aid. Therefore, something like the engine or axel would be noticed by security alone if security personnel were attentive. Not only that, other employees or management more likely than not would be able to see the theft occurring and could speak up or prevent the theft.
This raises another question, are the nuts and bolts of enough value that potentially hurting employee morale and paying for security checkpoints justified? In the case of Amazon or Apple that Sean and Yu Ming have mentioned, they sell products of high value that can easily be concealed in their pockets. Therefore, it would make sense from a risk/benefit perspective that they have security check points. However, in the case of GM and Cash, I think standard physical controls that monitor who enters a building such as security personnel and surveillance, will be just as effective in identifying and preventing the theft of valuable car parts.
Sean Patrick Walsh says
I believe a security check point in the context of the song would work. If you go back to the song, Mr. Cash talks about walking out with a bunch of gears in his lunch box. Now, I’m no vehicle expert, but there are only so many parts on a vehicle that have gears, and those gears are inside those parts which more than likely implies he was taking the “guts” of parts each time in order to assemble the larger part, say a transmission or differential gear, once he had all the pieces outside of the plant. Now, a check point would go a long way of an employee taking smaller pieces out in a lunch box with the intent of assembling the bigger overall piece. Kind of goes along with taking out the car piece by piece in order to assemble the car in totality on the outside. Would you agree in that context?
Paul Linkchorst says
Sean,
I see what you mean. I think in that context a security checkpoint would be effective since it would prevent the theft of small pieces that are built into something valuable. However, I suppose the real question is would it be worth it? I’ll go back to amazon as an example. The company sells items such as jewelry, electronics, and other expensive products. If amazon performed a cost benefit analysis, it might come to the conclusion that the benefit of a security checkpoint outweighs the cost, since the theft of say two pieces of jewelry equaling $80,000 would be greater than the cost of a security checkpoint that equals $50,000. With that being said, I think if the GM plant from the song did a cost benefit analysis then the costs would outweigh the benefits. I say this because the value of the parts stolen each year are likely less than the cost of the equipment and staff at the security check points. I suppose a good number of factors would have to be taken into consideration to make that decision. I agree that a security checkpoint would be effective, I just don’t know if it’s the right choice to prevent the fraud.
Binu Anna Eapen says
I agree. One place I worked they gave mobile phone to their employees and the asset management was responsible for issuing and taking back the returned phone once the user left or once they were due for an upgrade. The returned phones were not really tracked or counted as management assumed that it didn’t cost the much to the firm. One of the employee however resold the mobile phones and this went unnoticed for a long time like almost 3-4 years. This happened not only for mobile phones but also for smaller asset items like headset etc.
When this was found out and audited, they found that a total 5 crore Rupees worth assets were missing and much more which were not even listed.
This resulted in most of the asset management team to be fired and others concerning this situation also were removed.
I believe this was due to weak controls and so I guess we cannot really rule out a control based on the current cost implications. Like the song writer says he was planning to get an entire car assembled at the end of few years.
Priya Prasad Pataskar says
Great discussion everyone.
After reading the posts I would say that combination of controls is a good idea.
Lets say employees ave to wait for long security or bag search,
Solution – Have a sample check at random and on random days.
Security cameras- If employees feel they have been constantly under surveillance and if that affects productivity,
Solution – Have security cameras at defined points. Especially at all entry and exit points and near critical zones.
Mansi Paun says
That’s interesting, Sean. Thanks for the information on the Amazon case. I agree with your view that considerable thought should be put in before planning and implementing controls. Apart from the monetary aspect, standing in line for 30-40 mins a day for a check would have it’s share of problems. To tackle that problem, may be the company can introduce random checks to be done on employees. Just the thought or fear of getting caught stealing could be a deterrent to this kind of fraud.
Joshua Tarlow says
I would be curious to see if the cost implement mandatory searches of employees is effective at preventive thefts. And if it is, is it cost effective? I can see a scenario where it does reduce employee thefts but the cost to implement the program could be larger than any potential savings from stolen inventory.
Personally, I do think that the employees should be paid for their time, especially if it takes up to 30 minutes. Amazon does have legitimate concerns, but employees should still be treated with some respect and made to feel that there time is valued.
Wenlin Zhou says
The detective controls is to mitigate employees theft and fraud. security cameras and guards at the assembly line. The guards will be responsible to check employee lunch boxes and others bags. This is an effective method to monitor the inventory.
Wen Ting Lu says
I agree with you, implementing security cameras and guards at the assembly serve as detective controls. Managers can look at video of employee’s actions throughout the day to detect potential theft. In addition, having guards can quickly detect and notify management of attempts by employees or outsiders to steal company’s inventory or other assets. With security cameras and guards I think it is not easy for potential theft to steal because they know they are being monitored.
Priya Prasad Pataskar says
Very apt Binu.
I would also like to add that employee physical access log system can be in place. In this example, when Mr Cash was stealing big auto parts that could not have been carried in lunch box, he might have come with his friends at odd hours. A access record would be a great control here .
Ming Hu says
I think your first suggestion is not easy to detect, cause Mr, Cash stole one piece each time, even you detected that there’s a piece among hundreds is lost, how could you determine it is stole or missed?
Binu Anna Eapen says
Yes Ming. It will not tell us if a part was stolen or missed when it is a small number. But by checking the inventory we can know the trend. That is if it is happening regularly, what parts are missing and who was responsible or present at the time when the parts were missing.
Mansi Paun says
A 1 The Fraud triangle is a model for explaining the factors that result in one committing occupational fraud. It consists of 3 components – Pressure, Opportunity and Rationalization.
In the ‘One piece at a time” video, Johnny Cash goes on to say how he started to work as an Assembly line worker, installing wheels at General Motors in Detroit. Every day as he saw the gorgeous cars around, he started longing to get one for himself. The constant craving of owning one of the cars and the urge to show-off, pressured him to devise a plan so that he too could own a Cadillac one day by stealing one part at a time from the factory and later assembling it at home. The longing constitutes the Pressure component of the fraud triangle.
Cash had the opportunity of committing fraud as he was a worker at the factory and had easy access to the automobile parts. He also had a frend who would help him flick the parts out of the factory. This constituted the opportunity component of the Fraud triangle.
Finally, Cash goes on to justify his plan by stating that for the company, each part that he would be taking would only be one part which wouldn’t be of much significance or have a huge impact over GM over the course of years. This is the Rationalization component. In this way, all 3 components being present in this situation, made the environment perfect for Cash to commit occupational fraud.
Wenlin Zhou says
Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
This video is actually a song, One Piece at a Time, the singer,Johnny, worked assembly line in GM at Detroit when he leave home. He went a car, but he cannot buy it. So he decided to steal auto parts every day until assembling a car. And he did not need to pay money. However, the parts were from different years so he cannot use the car.
According to the Fraud triangle, as opportunity perspective he could steal different parts several years, so the GM company was lack of the internal control, and lack of oversight. He was able to take parts in his big lunchbox which nobody noticed. As incentive perspective, the financial pressure pushed him to steal parts, because he cannot earn enough money to buy a car. The car is his personal needs.
Wenlin Zhou says
Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
To monitor the inventory of supplies, materials and products needs to be accurate in order for your business to run efficiently. To make sure your inventory reflects what you purchased and created, you need the right inventory management system.
Control procedures are crucial to your company’s purchasing activities. Basic activities, such as segregating duties, can reduce your company’s risk of financial fraud. Employees responsible for making purchases, for example, should not be the same employees receiving the goods or handling payments to vendors.
Deepali Kochhar says
Good point Wenlin. It is important to maintain the uniqueness and accountability of every system. This can only be possible by putting in proper segregation of duties and if it doesn’t justify the cost we can use compensating controls to manage it.
Wenlin Zhou says
Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
The one different area in the international corporation is about the shipment Tracking. The shipment process may be lost the products or product damaged from overseas shipping. the control should provide visibility into the location of goods throughout the life of the trade. This includes entry and exit from ports, title exchange and proof of delivery. Tracking provides a status report regarding the arrival of goods at their final destination.
Priya Prasad Pataskar says
I would also like to add that the company should consider the geographical conditions to where the shipment will be delivered. If there is extreme change in climate of where product is made and where the shipment is suppose to reach may damage the product. Also the conditions while transporting goods must be favorable for the products and must be controlled.
In case of international shipping the perishing ability of items and time taken for shipment and further delivery must be considered.
A centralized quotation database is a must which considers the currency exchange between the boundaries of a country.
Wenlin Zhou says
As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Don’t get caught with too much inventory. “Afraid of being caught short, it’s easy to spend too much on inventory, which can eat up working capital and erode profits. Warehousing isn’t free, of course, and inventory that sits on a shelf is subject to damage, depreciation, and even obsolescence. Old inventory can be very hard to move. Your options aren’t great,’ says Paul Huppertz, a logistics expert with The Progress Group, a supply chain consulting company based in Atlanta. ‘You may end up marking it down, selling to discounters, or shipping it to overseas liquidators.’
“To fix it: Start with some decent projections of how much supply you’ll need and when you’ll need it. The best gauge is what you’ve sold in the past. If you’ve sold 100 items per month for the past 12 months, chances are that you’ll need 100 this month. Then there’s seasonality: Do you usually see a fourth quarter spike with holiday sales? Or, if you’re in the home and garden business, do you see more activity in the spring selling season? ‘You can also identify and quantify less obvious patterns such as month-end spikes,’ says Huppertz.”
You should be able to break down your inventory into three basic categories: safety, replenishment, and excess or obsolete stock. “This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas. It helps determine the minimum safety stock needed to provide an insurance policy against supply chain problems either from manufacturing glitches or distribution uncertainties so that customers get what they ordered. It’s useful for pinpointing the amount of inventory required to replenish deliveries every two weeks. And it helps companies find ways to avoid a backlog of excess or obsolete inventory.
Resource: http://www.camcode.com/asset-tags/expert-tips-on-inventory-control-methods/
Said Ouedraogo says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud Triangle is a combination of 3 factors (pressure, opportunity and rationalization) that cause someone to commit occupational fraud.
First, the environment was favorable to fraud because Johnny always wanted a Cadillac but did not have the money for it. The fact that he was put in the assembly line pushed him to come with his genius idea to steal one piece at a time until he assembles his own special car.
Next, he had the opportunity to smuggle the parts out of the company. In fact, he put the smaller pieces in his lunchbox and the bigger parts in his friend’s car.
Finally, Jonh knew his illegal activities would not hurt the company as he planned to steal the parts little by little. The company would not noticed anything because it was one piece at a time.
Generally speaking, people need the incentive to commit fraud. Once they have the incentive, they look for possible ways (opportunities) to commit fraud. Then, all they have to do is to convince themselves that their actions are justifiables and won’t hurt anybody.
Yu Ming Keung says
Hi Said,
You are right, with incentives, employees would look for opportunities to commit fraud and they would comfort themselves that it wouldn’t hurt the company as a whole. I really liked how you summarized the three element of the fraud triangle into two sensitives. It is not rare to see an employee like John to commit fraud in the company if three three elements are telling him to commit the fraud to satisfy his personal need.
Said Ouedraogo says
Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
First, I will install security cameras and guards at the assembly line. The guards will be responsible to check employee lunch boxes and others bags. This control system will help me monitor what’s coming in and out of the assembly line. Also, I will assign a number of component to each employee. The employee will issue a report on a daily basis saying how much components he used and why. This will simply help me to control my inventory and keep track of it.
Said Ouedraogo says
Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Doing business in a international level is complex. When shipping internationally, a company faces many challenges. One of the biggest challenge is “transit” and “custom”. For example, someone in Zimbabwe orders a good from an US company. Most of the time, the company will hire a third party (UPS, DHL, Fedex…) to deliver the good. In that specific case the OTC process becomes complicated, because the company has to make sure that the third party (let say DHL) will deliver the good. What if DHL comes and say that the good was seized by custom? The company should have a strong control that will eliminate any kind of failure or fraud during the all process.
Also some countries don’t have sophisticated address system like the US. In order to avoid any kind of fraud or theft at the delivery, the company and its third party will have to implement different controls than what they have in the US. They can implement a verification system where the recipient will show the receipt of the order and a proper ID (only the person who ordered the good can receive the package).
Yu Ming Keung says
1 Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud triangle consists of three factors that result in someone committing occupational frauds. Those factors are pressure/incentive, perceived opportunity and rationalization.
Johnny is an autoworker on the Cadillac assembly line where the environment did not have efficient controls to stop continual theft of auto part from the assembly line for multiple years.
1. Pressure/incentive: Johnny worked in the assembly line and his responsibility was to stalling wheels on cars, which brought him the incentive to get a car but he couldn’t afford. Johnny states that he had always wanted a fancy Cadillac car that was long and black and worth hundred grant. This feeling of jealousness, envy and emptiness toward a fancy car implies that he is under pressure to own one that sadly he couldn’t afford.
2. Perceived Opportunity: The opportunity to commit fraud is the circumstances that allow fraud to occur, and is the only condition over which the company has complete control. The company did not have monitoring of its products. No one would even notice that there was anything missing because the lack of control environment allowed employees to steal parts. Small parts could simply be carried over in a finished lunch box and bigger parts could also be stolen by friend’s car.
3. Rationalization: this element takes place in the mind of the perpetrator. In this case, Johnny would not consider himself as a thief and he realized what he was doing wouldn’t hurt GM much as he was only taking a little everyday. He also realized he could build a car by himself if his plan worked over a period of time.
Yu Ming Keung says
2 Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I were the operation manager of the assembly line, I would implement an inventory check to address the risk of employee theft. The inventory-tracking system uses a POS system that tracks inventory automatically or, at a minimum, use paper-based inventory-tracking sheets to send a signal to employees that inventory is indeed being monitored.
Second, I would also invest an employee reward program. This strategy is similar as the segregation of duties strategy where money bonus would encourage employees oversee each other. Sometimes, employees know and tolerate who is stealing from the company but they would not report it to the senior executives. The employee who reports others’ unlawful behavior would get a bonus.
Wen Ting Lu says
Hi, Yu Ming
I like you mentioned about implement inventory check, this is very important because it monitor the amount of inventory is up to date.
Your second suggestion brought up the ethical dilemma that employees might facing in work environment.
For my personal opinion I would prefer to give employee bonus when he/she has achieve a high performance. I am skeptical about give out bonus when someone reports other’s unlawful behavior. I think for most case, people will remain silence anyway. My take is people should report any misconduct that can clearly cause a serious detrimental effect to the company as a whole.
Yulun Song says
I like the second way! The money bonus way will increase internal controls since everybody is watching to another person. However, I am worry about one thing. If a person, lets say A, reports a steal of person B. Yes, B is fired, however, will A still stay in this company anymore? My thinking is that B’s friends in the company and also other not B’s friends but also work in the same position, they will hate A because A reports people. Another worry is that if everybody is watching to other people. People will feel scared if they are under watched, and creating other problems, like reducing the efficiency to produce, working environment is not friendly, and fighting between groups.
Binu Anna Eapen says
Yes I agree with Yulun. This type of control will not work in this case as it will create animosity between people and thus creating a very hostile environment. What if a person complains about another person but upon finding out it was found that this person was really not responsible for the theft. This would mean a loss of reputation and lack of trust between the employees.
Yulun Song says
Thank you Binu for supporting! it is true that some methods can solve some problems, but we also need to think about more not creating other big problems! we have to balance the pros and cons and think all consequences in every part!
Wen Ting Lu says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
A: The Fraud Triangle framework states that an individual is motivated to commit fraud when three factors come together: the pressure on the individual, the opportunity to commit fraud and the ability to rationalize the crime.
The scenario described in the “One Piece at a Time” video illustrated the Fraud Triangle framework very well. The main character Johnny Cash is an autoworker working on an assembly line in Detroit. The working environment was favorable to Fraud because there was not any controls taking place in the assembly line to safeguard physical inventory and prevent their assets being stolen. Therefore, Mr. Cash came up with an idea of stealing one piece of part at one time to build his own car.
Mr. Cash wanted a Cadillac so badly but he couldn’t financially afford to buy a car. He is feeling envy every time when he saw those beautiful cars come in. This shows that Mr. Cash is under pressure both financially and mentally because he’s not able to afford things he longing for.
The opportunity to commit fraud is very high because the working environment didn’t have proper policy and controls to monitor the inventory. It’s extremely vulnerable for employees to steal company’s asset without being caught. In Mr. Cash’s case he has been stolen parts in years but nobody noticed because he took one piece at a time.
The last parts of the fraud triangle framework is rationalization. In Mr. Cash’s perspective, he would not consider himself commit fraud because he only took one part at a time and in his mind that would not make any significant difference to GM.
Deepali Kochhar says
Q1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The scenario in ‘One Piece at a time’ is about an autoworker on the Cadillac Assembly line.
In terms of fraud triangle, it can be explained based on three points:
A. Fraud opportunity: Mr. Johnny Cash was working as an autoworker on the Cadillac assembly line. There were no check controls on the inventory and no record was maintained of how much parts are received and how much are used. Also there were poor internal controls and employees were allowed to carry their personal items such as lunch box without any security check. He even stole bigger parts such as fuel pump using his friend’s car. This all proves lack of oversight and poor internal controls
B. Incentive or Pressure: Mr. Johnny Cash wanted cardillac but he didn’t had enough money to buy one. So it was financial and emotional force that put him to commit fraud.
C. Rationalization: He had in his mind thoughts such as company is profitable so it wouldn’t cost much to the company if he will steel parts in several years. Also since his compensation is low it was a point to justify his thoughts that he is not doing anything wrong.
Deepali Kochhar says
Q 2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I am the operations manager responsible for the assembly line, I would establish following controls:
A. I will set up an Inventory control check to keep a well-documented record of the incoming and used inventory. This will give the correct idea of when and where the parts in the inventory are being used.
B. I will put in physical control over the inventory. This will help in managing unauthorized access over the inventory. No employee should bring in or take out any kind of personal item without a security check.
Priya Prasad Pataskar says
Great point Deepali. In addition to the control you mentioned I think division of duties is important. Mr Cash should not have access to all parts of all the cars. Employees could be distributed on basis of which parts they handle. The shift timings could be adjusted to ensure employees do not have access to everything,
Also development of an environment which discourages fraud in the company should be built. If one person even tries to commit fraud the other employee’s should be able to convince why he shouldn’t commit fraud against company. Satisfaction of employees within the firm they work is important.
Deepali Kochhar says
Rightly said Priya. Satisfaction of employees is achieved by setting up good organisation policies and procedures.
Every employee must me made accountable for the work they are doing and should motivate by given incentives, appreciations, promotions for their good efforts and at the same time they must be trained to follow the policies so that fraud cannot occur.
Priya Prasad Pataskar says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud traingle has 3 compements
1. PESSURE to commit fraud
2. OPPOURTUNITY to commit fraud
3. RATIONALIZATION to the commit fraud
One piece at a time is a beautiful elucidate of the fraud triangle. This song describes a worker Mr. Cash’s fraud to steal automobile parts from the company he is working in,one piece at a time, to build the car he desires. We can understand his thought process and actions in terms of the fraud triangle
1. Pressure –
This situation talks about 1949 which was the period after Great Depression. The world economics was not in a great situation. Mr Cash was working for a assembly line in an automobile factory.He feels deprived on the luxury of cars. He says that he used to watch the beautiful cars and cry as he wanted one for himself. He felt the need to be better than others so that others could envy him. He wanted to drive in style and show the world he was different. He wanted a car but considering his financial condition it was not possible for him to buy one. He had the pressure of being fired in case he was caught in a fraud.
2. Opportunity –
Mr cash was working on a assembly line and hence he had access to all the parts required for a car to be built. He realized that he could collect pieces of car by carrying them in a lunch box, one piece at a time, everyday. This would mean he is getting parts of car without paying for it. He thought if 1 part goes missing everyday, the GM would not care or even understand that 1 part is lost over the span of several years. He took help from his friends to steal the car parts while carrying the big parts that would not fit in his lunch box.
3. Rationalization-
He convinces himself that he is not a thief. He feels stealing one part everyday wouldn’t be a great loss to the company. He convinces himself that he deserves the car when he has worked for so many tears and post retirement he should have some reward. He also convinces himself how great he would feel while driving the car that no one else around him would have.
The environment was favorable in many ways
1. He had access to all the parts of various cars in an assembly line, more access than required.
2. There was no supervision regarding what was going in and out of the factory.
3. He had help from his colleagues who did not think it was wrong. The environment and culture in the company was not strong to protect against fraud.
4. There was dissatisfaction within in the employees
Yu Ming Keung says
Hi Priya,
Really great post, The environment part you mentioned is very helpful in understanding the whole scenario of Mr. cash’s story. The culture, the environment, working atmospheres and controls attract Mr. Cash to become a theft. He is working on the assembly line and he had access to all different car components. I think that by separating the assembly line into different process will limit the access for Mr. Cash based on the segregation of duty theory. One employee will be specialized on one assembly process and the others will be specialized another. That way will also increase the productivity and efficiency.
Joshua Tarlow says
Definitely agree that the culture is an important component to fraud, and this particular example. Although the employees may not be able to afford the cars they manufacture, there clearly seems to be something else behind their actions. One thing could be that they do not have loyalty to the company, or feel positively towards it. Some companies have higher employee satisfaction than others in the same industry and similar job functions. If these sentiments are already present, then the rest of the fraud components can more easily fall into place. In a way, it can build a foundation for fraud to occur.
Fangzhou Hou says
Great point of using the segregation of duty Yu Ming. You are right, in this case, one of the reason why Mr. Cash can access to all different car components is because the lack of segregation of duty. If the company can enhance the implement of establishing the segregation of duty related procedures, he may not have the accessible authority in all process, and mitigate the risk of stealing. Besides, I also believe the management should establish a more effective process in monitoring the assembly line, and detective control the potential risks in fraud.
Wen Ting Lu says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
A: If I am the operations manager responsible for the assembly line I would implement the following controls:
1. I will make sure security camera and security guards at the assembly line are implemented. As I mentioned earlier under Wenlin’s post with this detective control, managers can look at video of employee’s actions throughout the day to detect potential theft. In addition, having guards can quickly detect and notify management of attempts by employees or outsiders to steal company’s inventory or other assets. Also, with security cameras and guards I think it is not easy for potential theft to steal because they know they are being monitored.
2. Separation of duties is a must. For example, shipping and receiving duties should be separated from those who issuing invoices or paying bill.
3. Perform surprise inventory count at infrequent intervals to test the accuracy of the perpetual accounting system. Surprise count is a good method for testing whether inventories comply with controls. Also, it will set an expectation among employees that people are checking on the inventories to make sure the amount are up to date.
Yulun Song says
the third way is a good way! surprise count will allow people feel scare all the time because they don not know when the manager or related people or person will come to check.
Mansi Paun says
I Agree, Wenting. Having random inventory checks and segregation of duties should greatly help in reducing fraudulent activities of the sort that Mr.Cash was carrying out. Regarding monitoring controls, however I believe they should be placed only where high worth parts are involved such as an engine or chassis even though these items are large and noticeable. Lost nuts and bolts are actually not going to make a difference to the company and without the larger parts, the smaller parts anyways wont be theft-worthy. On the other hand, you don’t want to be adding to the chaos by monitoring the tiniest parts in a way that your attention is drawn away from the more valuable parts.
Fred Zajac says
The One Piece at a time video shows examples for each area of the Fraud Triangle.
1. Perceived Opportunity
As an employee, he knew the environment and knew there was a poor lack of internal controls and oversight. The company never checked employee bags for merchandise. I remember working at a department store. They scheduled the same ending times for employees and positioned a security guard next to the time clock. The security guard would check all bags for merchandise.
2. Incentive or Pressure
He believed his Cadillac would be the best in town, even though he failed to steal the correct parts. He was already into deep and felt he needed to continue with the fraud. The company could have had an “amnesty” box, where you could put parts, or items back without repercussions. The may have returned the items after he realized they were not the right products.
3. Rationalization
He believed one day he would get caught but would be rich by the time he got caught. There was an obvious poor relationship between employee / employer. The company could allow for unions, which would attract the best talent. They could offer employee discounts for parts. Maybe even offer profit sharing. This would reduce the chance of stealing because the employees knew they were getting the parts at cost and much lower than retail price.
Fred Zajac says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
I would implement the controls mentioned in answer 1.
I would schedule the employee shifts in 3 or 4 time blocks. This will have all employees entering and leaving the assembly area at a specific time during the day.
At the starting and ending times for each block, I would position a security guard at the employee entrance / exit. The security guard would check all bags, and lunch boxes for items.
Fred Zajac says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
The order to cash process requires prompt delivery to maintain a trustworthy reputation. The decision to ship internationally increases risks compared to domestic shipping services.
The first example is not knowing where your package is. I had purchased something off of amazon before becoming a prime member. The item was being shipped from China. The tracking number amazon provided didn’t show where my package was during delivery. Domestically, the tracking information is displayed because of an effective ERP system that allows bar code scans and tracks the package at each location. The international companies may not have the same ERP system, which makes it difficult to communicate.
You would have to stipulate different shipping terms in the Service Level Agreement. Use preferred shipping partners and work with them to develop a better tracking system.
The second is the quality of the product. Amazon must be careful who they allow as suppliers. United States regulations don’t apply in other countries. You may be purchasing an item from a dirty manufacturing plant with poor quality items. The supplier is found to use toxic materials, that would normally be regulated by the FDA. Now your reputation is destroyed.
You would have to put more resources into inspections. The international company doesn’t have the FDA, which is fully paid for through taxes. The company selling products in the United States would have to spend the money on quality controls.
Fred Zajac says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
The most obvious, but less obvious is cameras in stores, class rooms, living areas, ect. The “eye in the sky” allows the security team to review a crime scene to help identify the criminal and victim or protect the company from inventory loss. These measures are effective, but sometime the technology doesn’t produce a good enough quality of a picture..
The second example would be hotels holding $50 on a credit card when you check into the hotel. The hotel will issue the $50 back after they calculate any charges made to the room. This protects against stolen towels, pillows, and other removable items. This is very effective but it only covers $50. What if the guest takes $100 worth of items but is only approved for $50 on the given credit card. The hotel won’t know until they try and run it for another $50. Now they have to wait until the bank authorizes another $50, which may never happen.
Binu Anna Eapen says
Well said. In the second control, I guess it is better to have at least 50$ in possession rather than having a total 100$ loss. And the chances of it happening also are rare. So can this not be ignored? I mean would you want to increase it to 100$ which might be too costly for most customers.
Abhay V Kshirsagar says
Fred, Binu,
Do you guys think it will be better not to have a fixed value, like $50, and have the customer credit card information as a perquisite for reservations and a control for the hotel to mitigate theft? That way, you can just bill the customer for whatever items that are missing; and importantly, have this in the contract.
Annamarie Filippone says
Q1. Using the Fraud Triangle, analyze the “One Piece at a Time” video scenario and explain how the environment was favorable to Fraud.
The three necessary pieces of fraud – Pressure, Opportunity, and Rationalization – were all present in the scenario presented by “One Piece at a Time”.
The pressure comes from Johnny himself. He’s always wanted a Cadillac, and wanted to be the envy of town as one of the few people who had one. The opportunity came from working on the assembly line and by having a friend at the company that was willing to help him. This allowed him to easily sneak pieces of the car out over time. This behavior was rationalized with the idea that the company would not notice little pieces going missing over an extended period of time, and that they would not suffer as much this way, versus stealing an entire car at once.
Annamarie Filippone says
Q2. Assume the “One Piece at a Time” video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
The first control I would implement would be tracking components better by having them checked out by the employee responsible for that part of the assembly process. This would create accountability within the organization and make it easier to investigate missing parts. In addition, I would create stronger physical controls, especially for larger components. These parts would be separated, each kept in its own locked storage area.
Annamarie Filippone says
Q3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1-2 specific examples.
Transporting goods internationally opens itself to increased risks that domestic shipping may not have. A company must ensure that any third party it is using for the actual transport has a track record of successful international delivery. A lost shipment, whether from actually going missing or from being seized by customs, will not only create additional costs for replacement, but it will also lead to a negative experience for the customer, who may decide to take business elsewhere.
Ming Hu says
Thanks for your sharing. Shipment is a literally big problem, international transportation means more parties involved, long time period, different import/export policies, which may cause difficulty in tracking, easily in losing or damaging of products. It puts a high demand for companies to control international transportation.
Annamarie Filippone says
Q4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
One inventory control measure that comes to mind is controlling the quantity of inventory on-site at any given time. Having too little of inventory could lead to an organization running out before they can get more. This not only reduces the amount an organization can produce or sell, but also may lead to customers going elsewhere if they do not want to wait for restock. On the flipside, having too much inventory not only creates more costs for an organization, but also increases the potential for theft. By tracking and maintaining proper levels of inventory, an organization can reduce these risks.
Said Ouedraogo says
Annemarie,
I agree with, excess of inventory is costly and increase the risk of theft. In fact, it is an incentive for the employee to commit fraud. Plus, it is really easy in this case to steal because the excess inventory may not properly racked in the warehouse. Someone can just take what he/she wants.
What about if someone takes something that has been in the inventory for years? Are there any controls for that?
Vu Do says
Good point Annamarie, knowing your inventory on-site is very important because you do not want to have items that are hot on the market run out of stock. You want to be able to have a delivery out for that item as soon as the last 2 are on the shelf. Having too much is also a problem since it takes up more space in your storage. They must then find a way to get rid of the items that are overstock, usually a sale. But being able to maintain the inventory is very important and will minimize the risk of like you said theft on the overstock items and lose of sale on items that are selling quickly.
Tiesha Christian says
Annamarie Filippone – You make a valid point of running our of inventory too soon, and by having to much can create an atmosphere for theft.. Most companies utilize third party companies to manage their inventory. Or have a designated team to mangage and forecast future shipments automatically. I really think these are the best setups. scenerios, When another companies is working out the logistics and the company just need to perform their own internal inventory checks periodically.
Yu Ming Keung says
1 Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Compared to domestic shipping, international shipping often times pose higher risk for the customers. Since international shipping will often take more time to deliver the item. The more time it takes to deliver an item, the more probable that the item will get lost. Because of the unavailability of the tracking system until the package arrived to domestic, customers are not easy to track their package. people purchase from oversea may take more risk from international shipping because of lack of controls in its tracking system and quality. The tracking numbers provided may not be the same outside the US because there are more parties getting involved in international shipping such as foreign shipping companies.
Control and solution: work with the shipping companies to develop a solid shipping process to increase the communication level as well as ensure the package is deliver on time.
Binu Anna Eapen says
I agree with you that international shipping is exposed to more risks than domestic shipping because more than one vendor can be involved here. And also it will be time consuming to track the lost packages. The chances of theft is also more. It also involves various costs like international shipping costs, And might have import/export custom checks and custom charges.. Various countries can have various laws regarding shipment of goods.
Yu Ming Keung says
As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
As a customer walking into a shop, we might only see some security guards or jewelry cases but there are many inventory control to prevent inventory loss.
The first less obvious inventory control measure that came to my mind is security camera. Having a effective security system of inventory can directly contribute to bottom line by reducing unnecessary expenses. Security cameras can reduce incidents of inventory theft. Cameras can either installed in the shop to prevent shoplifting or in the inventory warehouse to prevent inventory theft.
The second less obvious inventory control measure is separation of duties. Theft by collusion becomes harder to commit when more people are getting involved in a multi-step process. Do not allow the same person to place inventory orders and check the accuracy of incoming shipments.
http://smallbusiness.chron.com/ways-control-accounting-inventory-5204.html
Vu Do says
Great points, I liked the separations of duties for inventory control measures. With that in place for an example of the locked jewelry cases, you can have it so one person knows the code to one vault and another person say the manger knows the code to the second door within the vault. That way, when there is access to the vault, the two that knows the combination are the ones responsible. If a theft breaks in, then they won’t be able to access the vault without having both the people there.
Joshua Tarlow says
Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
All three components of the fraud triangle are present in the video, rationalization, pressure/incentive, and opportunity. First, the subject definitely felt pressure/incentive to commit the fraud. He began to work on the assembly line for Cadillacs and became jealous the luxury care because he mostly would not be able to afford it himself. Every day he went to work to build an item he could never have and desired. Jealously created the motivation to commit fraud in this example. After the desire manifested, he then devised a plan to build the car himself with stolen car parts. Second, because he worked at an assembly line manufacturing Cadillac, he had access to the parts/inventory. He used this opportunity to steal the parts by concealing them inside of his lunch box and transporting them to his home, where he would build the car. Third, he easily rationalized it because GM would not miss any of the parts. GM is such a large company that the stolen parts would not negatively impact him, so in a way it was a victim less crime in his perception. For some people it can be easier to justify stealing inventory from a larger company as opposed to a smaller or locally owned business. Had he known the owner and could see a tangible and immediate impact from his theft, he might have felt differently about it.
Yulun Song says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The fraud triangle includes pressure or incentive, opportunity and rationalization. In the video, the first could be pressure. Cadillac was a good car at that time whereas many workers on the assemble line did not have it. So workers wanted and admired the car because it was good.
The second could be opportunity. Since the fact that he worked at the assemble line, and tried to steal small parts back to home, the reason of that was the company lacked internal controls and oversight on the lines.
The third could be rationalization. Since the fact that the company was GM, which was a big company and workers thought the company was profitable and they got low payment. So people tried to steal some parts.
Yulun Song says
2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I were the operation manager, I would implement a software that is to track where each part goes. If the part goes to next direct line, the software will show green on it; if the part goes to a wrong place, it will show red on it and it tells the location that the part was stopped. If the part is broken, it will show yellow and the part will directly go to recycle line.
Another way, I would install cameras to have an overlook on the top to see any frauds. Plus, I would set assemble line leader to track frauds. This way could help reduce the opportunities to steal.
Vu Do says
Not bad Yulun, having cameras in place will be a good resource to turn to just in case you need to check the tapes for anything suspicious. With the cameras in place, employees will be more unlikely to commit fraud for fear of getting caught and losing their job over it. Being able to rewind and go back to view past recorded videos is also helpful just in case you want to double check something. Cameras would definitely minimize the risk of the kind of activities Mr. Cash was committing in the video.
Yulun Song says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
Shipping domestically is different in shipping internationally. Domestic companies can easier track its packages and contact to the third party shipping carrier like UPS, USPS or Fedex if making some changes based on the similar time zone, local policies and currency. International companies have more risks to lose their packages because different countries have different policies, time zone, currencies and languages, making shipments harder. This is the reason that many companies buy insurance on their goods for shipping internationally to cover the costs if goods are lost.
Fangzhou Hou says
I agree with you that international companies have more risks to lose the packages. Indeed, different policies and time zone could be important reasons to higher the risk of losing packages, and I want to add one more, the multiple shipment processes could also higher the risk in losing international packages. In fact, international packages usually involved in two or more shipping companies. For example, a customer wants to ship a package from LA to Hong Kong, the shipping process may include 2 parts: LA to Tokyo, and Tokyo to Hong Kong. When the package transferred from one shipping company to the one another, the risk of losing the packages significantly increased.
Yulun Song says
correct Fangzhou! Thank you for adding that! more companies will involve more different policies and regulation. if two companies have interrupted, can’t imagine what do they solve the problem with some on-process shipments!
Mansi Paun says
Well put, Yulun. In addition to the point you made about insurance, I’d like to add that shipping costs also could be greater and a tad complicated. Doing business internationally would require working with multiple shipping companies and local vendors for door-to-door delivery as well. Shipping internationally would mean a longer duration to deliver to the end customer so you would also need to have a system in place to keep the customer informed of the whereabouts of his/her order.
Yulun Song says
Yes Mansi! if the products transfer in many locations, that will be involved more different policies because different countries have different policies and currencies!
Fangzhou Hou says
Question 1: Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
The Fraud Triangle includes the pressure, opportunity, and rationalization. In the case of “One Piece at a Time”, Mr. Cash worked on assembly line, which offered him the opportunity to steal one piece of the car at a time through a big lunchbox, because he “always wanted one that was long and black”.
From the fraud triangle’s perspective, Mr. Cash was under the pressure that he really wants that car which worth “at least a hundred grand” after he retired. Since he worked on the assembly line, and he had the opportunities to steal parts of the car from the line. Within the song, Mr. Cash mentioned that “getting’ caught meant getting’ fired”, but the problem is, he never got caught.
The environment of the factory was lack of effective policies or systems of monitoring the assembly line. If the company had procedures like double check the amount of parts, or the manager asks why Mr. Cash brings a big lunchbox every day, he might not able to keep steal the parts of cars from the line one piece at a time without being caught.
Fangzhou Hou says
Question 2: Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I’m the operations manager responsible for the assembly line, the first control I will implement is establishing a detective control process to ensure the total amount of parts is the same, and if someone steal the parts from the line, the unbalance amount of parts will alarm and quickly find out where loss the amount of the parts. If the amount of parts in the process is balanced, then the parts will be marked as “checked”. This can limit the “opportunity” of the Fraud Triangle, and mitigate the risk of stealing. The second control I will implement is establishing policies and procedures to enhance the physical protection of the parts. For example, the important parts of cars like engines should be locked and the managers should double check the amount of the parts before they leave the storage.
Fangzhou Hou says
Question 3: Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
One different in the controls of a purely domestic company vs. an international company is the time period of the shipping. For example, if the customers purchase products in a purely domestic company, since they order the products to receive the shipment, it usually less than a week. Some premium service even offers a 2-days guaranteed shipping like Amazon Prime. However, if the customers purchase from an international company, the shipping process usually two time slower than the domestic company, and it usually more expansive.
Moreover, the risks of losing the package for the international purchasing also higher than the purely domestic purchasing. Because the international shipment usually requires different third parties to ship the package, and when one shipping company hand over the packages to another shipping company, the risk that losing the packages naturally increased.
Yulun Song says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Obvious inventory controls include installing cameras or making property locked. For less obvious inventory control, the first way is using electronic data interchange and bar code scanning can help eliminate data entry errors. People count wrong numbers or are fraudulent because of intentionally or unintentional manual count. we can have two people to count a same bulk of inventories to reduce the risks.
Another way is using ABC method for inventory control. This is one of the common methods used across retail industry and it is at times coupled with other methods for better control on inventory. This is more of an inventory classification technique where in products are classified based on the sales contribution and importance of the same in their assortment plan.
http://www.camcode.com/asset-tags/expert-tips-on-inventory-control-methods/
Abhay V Kshirsagar says
Yulun,
I agree. Human errors as we all know are inevitable and the only way to mitigate them are to make processes automated or have a supervision. Data entry errors can also be resolved if we have the real time inventory updating at Point of sale.
Seunghyun (Daniel) Min says
Q1. 1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
Pressure – This is what motivates Mr. Cash to commit the crime at the first place. His motivations to taking the parts of Cadillac piece by piece from the assembly line were his desire to drive around in style, drive everybody wild, have a one-of-a-kind and the only one in town.
Opportunity – Mr. Cash had the opportunity to commit a crime because he worked at the GM’s automobile assembly line for 20+ years and had access to all the parts he needed to build a Cadillac. He was able to take out most of the parts with his lunch box and if the parts were too big to carry within the lunch box, he had an accomplice with a motor home.
Rationalization – One thing clear in this mind was he had never considered himself as a thief. He was going to work for GM more than 20 years and he took out the parts piece by piece over several years. And he was the one that was building a car. In my opinion, that argued that he wasn’t stealing a car, but he was just getting a help from GM to build his own car.
Vu Do says
Good points Dan, agreed the pressure was there for Mr. Cash to commit the fraud. Working on the assembly line and seeing all the parts come through. He could have his chance to build the one of a kind Cadillac and be the only one in town with it. So the pressure to stand out and be different got to him and cloudy his judgment. His desire took over and he began to commute the fraud by stealing one part at a time.
Seunghyun (Daniel) Min says
Q2. Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
If I were the operations manager responsible or the assembly line, I would implement two specific controls to prevent frauds
The first one is a Segregation of Access. In the ‘One Piece at a Time’ video, Mr. Cash basically had access to all the parts he needed to build a Cadillac. If he had a limited access to all the parts, GM could’ve prevented Mr. Cash from committing the crime. As an operations manager, I would create different groups in an assembly line and each group would have only limited access to the parts that they are only responsible for.
The second control I would like to establish is a ‘Matching system’. What I mean by the ‘Matching system’ is if there are 100 parts sent to an assembly line, in the end of each day or each process of the assembly, those 100 parts should be recounted or monitored. That was we can count what is missing or has been completed.
Binu Anna Eapen says
The second control you mentioned here helps us in detecting if a fraud happened. It does not really prevent it from happening. If you find that there were only 99 parts and 1 was missing, how will this control to check or stop this from happening.
Abhay V Kshirsagar says
Binu,
You’re right. The second control sounds more of a detective control to me as well. If you have the matching system installed on every milestone (every 10% completion, for eg), this can give the management some idea about the theft area.
Seunghyun (Daniel) Min says
Binu,
Thank you for your comment! In my opinion, the second control I mentioned could be possibly preventing a person from committing a fraud. For example, like a real life scenario, you know there is always a police car on the entrance of the highway you are taking to go to work all the time. Then, you would not tend to or not at all speed up there.(unless you are willing to get a ticket) So my approach to the second control is a similar concept to my example. If you know that a manager is going to count every part that you assemble in the end of your work, you tend not to steal a part from your work. However, I also appreciate your point because this control is not designed to prevent a fraud totally. But in real life situations, you will definitely see this kind of controls in organizations or companies. For the ROI perspective, controls, like I mentioned, could be selected over more sophisticated/complicating controls because it is simple, cost-effective, and efficient (to some extent) to prevent a fraud.
Said Ouedraogo says
Daniel,
I agree with you. In a financial point of view, this control is cheapest. The only problem is that it will be time consuming and won’t prevent fraud at 100%. However, the fact that the employee knows that there is an inventory reconciliation at the end of the day will push him to well behave. Unless he/she has a good explanation about the missing piece, I don’t think he/she will steal it.
Abhay V Kshirsagar says
1. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
Another control is to use the most effective method to calculate the safety stock levels rather than going with the simple thumb rule, for example, all goods made in the factory will need 10 days of safety stock. Statistical formulas dealing with accuracy of sales forecasts, service-level data for each stock keeping unit and production lead times should be used. The issue with the rule-of-thumb is that it typically is based on products with unpredictable delivery histories. Efficiency of operations increase if standard statistical formula looking at historical data of each product is used.
In some cases, it can also be a good option to considering using an outside inventory management team. For example, a large retailer like Amazon who has “cyber Mondays” every November. The third party management can count the full stock, determine reorders and scrap unwanted goods to send back to the vendors as per the contract.
Abhay V Kshirsagar says
SOURCE: http://www.bain.com/publications/articles/ten-ways-to-improve-your-inventory-management-wsj.aspx
Tiesha Christian says
Abhay V Kshirsagar – I like your thought of having an outside management team. Having an outside team is a great way to mangage the resourses/inventory of the company. I think this will definitely help to mitigate losses. Maybe they can utilize the outside company for a short period of 6 months of so. Until they can continue with the better recommended practices.
Tiesha Christian says
Abhay V Kshirsagar – I like your thought of having an outside management team. Having an outside team is a great way to mangage the resourses/inventory of the company. I think this will definitely help to mitigate losses. Maybe they can utilize the outside company for a short period of 6 months of so. Until they can continue with the better recommended practices.
Ming Hu says
Using the Fraud Triangle analyze the “One Piece at a Time” video scenario and explain how the environment was favorable to Fraud.
Johnny’s opportunity was that he worked on assembly line at Cadillac where he had access to the parts for a car, and due to lack of inventory control, he stole one piece at a time by himself or with help from his friends without attention
Besides, his incentive for committing fraud was that the plan he devised wouldn’t cost him too much, as a result, he got a dreamed car worth $100,000 with long-term effort, which would be the envy of most any man.
Finally, each time a piece spanned 20 years wouldn’t do any hurt to GM, this mentality justified his fraud, he even didn’t consider himself a thief.
Ming Hu says
As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
“First-in, first-out” is a widely used principle of inventory management. It means that oldest stock (first-in) gets sold first (first-out), not newest stock. This is particularly important for perishable products to avoid unsellable spoilage.
For example, as we purchase milk, the stores usually push the oldest product to the front of the fridge and replace newer milk behind those cartons. The cartons of milk with the nearest expiration dates are thus the ones first sold, whereas the later expiration dates are sold after the older product. This ensures that older products are sold before they perish or become obsolete, which may become profit lost.
Jianhui Chen says
Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud?
Pressure: Mr. Cash is eager to have a long black car, but he don’t have enough money, which motivates him to consider committing an illegal act to realize his goals.
Opportunity: Mr. Cash gets the trust from his company. And GM corp don’t did well on its process monitoring, which give Mr. Cash an opportunity to solve his financial problem with a low perceived risk of getting caught.
Rationalization: The vast majority of fraudster are first-time offenders with no criminal past; they don’t view themselves as criminals. The fraudsters justify the crime to himself in a way that makes it an acceptable or justifiable act. So does Mr. Cash. Mr. Cash thought he is not a thief, as he thought what he did doesn’t have any harm on GM corp.
Source: http://www.acfe.com/fraud-triangle.aspx
Jianhui Chen says
Assume the ‘One Piece at a Time’ video scenario could happen. If you are the operations manager responsible for the assembly line, what 1-2 key controls would you implement? Explain how the control addresses the risk.
In the video, we get that Mr. Cash can get any auto parts without any authrization, and after he steal it, and no body in the asseble line aware the missing parts. Firstly I will implement preventive controls: when the employees get auto and trunk parts needs to get the approval from the inventory managers. The segregation of duties is necessary for monitoring the inventory
Tiesha Christian says
Jianhui Chen – I agree that segregation of duties need to exist. What are some other things you think may work to mitigate that type of risk from occuring? I think maybe if the assembly line had a relationship with the local auto part vendors and had like a parts check-in/check-out system that may help. If they are working together, there will be eyes on everything.
Vu Do says
1. Using the Fraud Triangle analyze the ‘One Piece at a Time’ video scenario and explain how the environment was favorable to Fraud.
For the video everything was set up for fraud being that he was already working on the assembly line and the opportunity was there. He feel as though he could get away with it which gave him the motive to commit the fraud. He then felt as though he can get it part by part and get away with it. His want for the car overtook his good nature so he began to get the parts to build his Cadillac part by part. Once he started, there was no turning back. Working on the assembly line and learning the inside part of everything that is going on gave him the ability to rationalize the option presented in front of him. He believe what he was doing made sense and that there would be no backlash towards it so he began and that was that.
Tiesha Christian says
As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
I would say some of the lesss obvious control measures include hidden cameras that capture a wide range of footage. In addition to the cameras, I would say sales personnell being attentive for the customer experience and to prevent loss. If sales staff are keeping their eyes on customers, that can prevent some loss. As for the cameras, you just never know where they are and what they can see.
Wen Ting Lu says
3. Controls are important in all the OTC processes including shipping. What would be different in the controls of a purely domestic company vs. an international company? Give 1 – 2 specific examples.
International shipping opens doors to many new opportunities, however there is a greater risk of fraud. When you ship or receive a package internationally, there is very limited control that consumer or even shipper have over the shipped items. Sometimes, you won’t even know if the item has reached its destination. As said, for international company, they often hired third party such as DHL, FedEx, and UPS, etc. It’s difficult to keep track of the shipping, the status of the shipping might or might not updates depends on where you are and which carriers you choosing.
In addition, compared to domestic shipping, international shipping take longer delivery time, therefore it increases the risk of package being lost and damaged if it’s fragile product for example. Also, the shipping cost for internationally is significantly higher than domestic shipping.
Moreover, there are also customs need to take into consideration. Such as import duties, taxes, etc. All these customs information should determine and make clear before the items shipped out.
Jaspreet K. Badesha says
1. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
-Hidden cameras that only managers and security personnel know the location of. This deters employees from stealing as well as consumers
-Only one entrance and exit for employees, this allows you enforce protocols on employees and prevent theft by employees.
-Plain clothed (non-uniform) security officers, this helps catch customers who are trying to steal.
Wen Ting Lu says
4. As consumers we encounter (knowingly and unknowingly) inventory controls all the time (e.g. locked jewelry cases). What are 1-2 less obvious inventory control measures used. Are these measures effective?
One less obvious inventory control measure is security camera, it’s effective to implement security camera inside the store. However, it might not be effective all the time because of the angles that camera is installed at. Sometime the camera cannot capture the image you want, or the quality of the image is very not clear.