Scenario:
You, as one of the financial managers in the company, noted that the stock manager works a lot of overtime, also over week ends and have two laptops (one is a private laptop) in her office, whilst all other managers in the business only have one laptop. Although the stock manager allegedly regularly meets off-site with suppliers of stock items to your company, it has not initially raised any red flags with you, since it could have been legitimate client meetings.
You ascertained that the stock manager insists on placing orders for all stock items, personally signs for receipt of the stock items and also insists on personally performing annual stock counts prior to the external audit, since she claims this will ensure proper control over stock items.
P.S. It appears that the stock manager also displays anti-social behaviour at the office by not mingling with other managers. She also declared the stock room off-limits to all personnel, even when she is on leave. Everyone at the office decided to keep the peace and let her be …
Typical questions that one would expect to hear around this scenario include the following:
• Is there anything suspicious to have two laptops (one private) whilst all other managers only have one laptop?
• Are there any red flags being raised for working excessively overtime?
• Is there anything suspicious for meeting suppliers of stock items at venues other than at the business?
• Has anyone reported a possible breakdown in internal control regarding the ordering, receipt and counting of stock items by one person?
• Has anyone reported the alleged anti-social behaviour of the stock manager?
• Has anyone reported the possible suspicious behaviour of the stock manager who declared the stock room off-limits to all other managers?
• Do you fear any reprisal if you report the suspected unethical conduct of the manager?
• Can the conduct of the stock manager be regarded as more than just unethical conduct?
Why are segregation of duties so important in any organisation?
Segregation of duties offers several benefits in the context of stock control and internal controls by separating responsibilities, different individuals review each other’s work. This oversight helps catch errors or discrepancies more effectively. Segregation also ensures that no single person has complete control over a process. For example, one person initiates a stock transaction, while another approves it. This reduces the risk of collusion for fraudulent activities.
When different people handle different aspects of stock control (e.g., ordering, receiving, and recording), it minimises the chances of mistakes due to fatigue or oversight. Proper segregation aligns with regulatory requirements and best practices. It demonstrates transparency and accountability to auditors and stakeholders.
It is also important to remember that the specific duties to segregate depend on the organisation’s size, structure, and industry. In our scenario above the company decided to allow the situation of no segregation of duties to continue at the time due to budget constraints and from an ethical and integrity perspective, to trust its employees to abide by and comply with its code of ethics and business conduct.
Integrity in the workplace, either for individuals or the organisation itself, refers to a set of core values and attributes that guide individuals to act with honesty, trustworthiness and good judgement in their work.
As previously also discussed, some practical ways to showcase integrity in the workplace include the following:
• Prioritise doing what’s right over personal gain.
• Seek guidance when faced with difficult decisions.
• If in doubt, consult!
• Avoid gossip or negative talk about others.
• Safeguard sensitive information.
• Always place the well-being of the company first.
Some guidance on how to approach our scenario mentioned above:
Always assess each situation and gather evidence and objectively evaluate the behaviour of the implicated person, e.g. why are there two laptops (IT usage policy), why meet with suppliers off-site, why the anti-social behaviour etc. It is important to remember that it is not required for the person reporting the suspected unethical behaviour to conduct a complete investigation relating to their suspicions of possible misconduct.
Consider your responsibility regarding the possible unethical conduct and keep a record of any discussions that you have in this regard. Talk to your Human Resources department or a higher-level manager, otherwise use an anonymous avenue for reporting unethical dilemmas, if available.
If required, employees should also consider consulting the company’s code of conduct or ethics policy for guidance on how to handle the scenario, especially the scenario where employees are clearly kept away from the stock room allegedly without credible reasons.
It is also important to evaluate whether the actions of the manager can be considered as a misrepresentation to the company, which could support possible fraud, alternatively theft suspicions for further investigation. In this regard consult with suitable qualified and experienced investigators to assist with a criminal investigation, if required.
It is always important to act with integrity, even when faced with difficult situations. In our scenario above, senior management could have considered the proper investigation of at least the following points:
• The use of a private laptop at the business premises (possible conflict of interest or running a private business without approval),
• Reason for meeting suppliers off-site and not at the business premises,
• The need to work excessive overtime,
• Red flags regarding the non-segregation of duties in the area of stock control, and
• Alleged questionable rude and/or unethical behaviour of the stock manager towards colleagues.
Alternatively, senior management could also consider consulting the internal and external auditors of the company relating to the possible identified red flags.
Be on the lookout for our “coffee table” discussion(s) of more potential unethical scenarios and looking for guidance on how to handle those scenarios based on the practical guidelines discussed above.
Written By: Gerrit Jordaan