Question

Daniel Brown is in charge of the $250 petty cash for Metro Auto Repair Service. When an employee needs a special part that is not in inventory, Daniel takes the money from petty cash to buy the part. One day Daniel is short of cash and needs some lunch money. He decides to borrow $10 that he will pay back on payday in three days. Daniel continues this practice for three days for a total of $30. He does not have enough to pay the petty cash back. When he reconciles the petty cash, he records this $30 as cash short/over expense. This is the first time he has done it.  

(1.) Is this an ethical action?

(2.) What could the company do to prevent this type of behavior in the future?

Answer 1

No. It is surely an unethical behaviour. Daniel Brown's action can no way be justified as an ethical action. A fraud or embezzlement comitted even for the first time once is a fraud and cannot be justified. Even after committing that mistake, he again committed another unethical behaviour, that is, misrepresentation. He recorded that $30, as cash short/over expense. Hence, embezzlement, misrepresentation, etc. are unethical behaviour done by Daniel Brown.
Many businesses have weak controls over petty cash. Businesses have lost significant amounts of money over time because of a lack of control over petty cash spending. Weak controls over cash in an environment where employees are often hard pressed for cash creates a tempting opportunity for embezzlement and fraud. Having strong controls over petty cash is the surest way to deter potential criminals from embezzling petty cash. The company can prevent this type of behavior in the future through,
- Segregation of roles of personnel
- Defining the expense limit and approval matrix
- Use of petty cash vouchers for all petty cash transactions
- Review and approval of petty cash reimbursement request
- Periodic cash counts