Q:

Subject: Tax /Ethical Question

Dear Mr. Kerstetter,

As an aspiring accountant, ive encountered an ethical dillema at my job. I currently work for a retail establishment(non accounting related job)where we sell high end luxury fashion goods. A few weeks ago, i noticed a transaction that wasnt “right”. A sales associate sold some merchandise to her client that was over $100,000 in store. Come to find out, the sales associate and assitant manager did not charge the client tax(the tax was approximatly $9500). To “dodge” the tax issue, the assistant manager shipped out an empty box filled with catalogues and possibly magazines to give the impression that the merchandise was being sent out to the client at an out of state address via FedEx. The thing is, items that exceed over a certain amount(im guessing over $10,000) typically need to be sent out insured by an armoured security delivery service. My question for you is what kind of laws has the sales associate and assistant manager violated? Im under the impression this is tax fraud and quite possibly, mail fraud. I feel that this transaction should be reported for I feel its very dishonest yet i know the outcome will most likely be termination of those employees. I dont want people to lose their jobs but at the same time these kind of things should not go unspoken. Thanks

A:

This sounds very similar to the infamous art dealer cases in New York a few years back, where several very famous art dealers received prison sentences for helping their customers evade state sales taxes by pretending to ship paintings out of state.

So, what your superiors are doing is obviously very illegal and will come to light eventually.  Anyone the government determines was part of this conspiracy to evade the taxes will most likely be prosecuted.  The prosecutors will have to exercise their own discretion as to how vigorously they want to prosecute anyone they learn knew about the scheme and failed to report it.

Since you are aware of this ongoing crime by some people at your employer, you do have a dilemma as to how to proceed.  I can think of a few options for you.  You didn’t say who your employer is or where you are located; so I’m not sure how many of these will be applicable for your particular situation.

At a minimum, you should report this illegal activity to the top CEO of your company, as well as to the person in charge of the company’s Internal Audit department.  When I was employed in the Internal Auditing profession, there were a number of instances where I was alerted to criminal activity by employees and I was allowed to follow those through with my own investigations that led to employee terminations and criminal prosecutions.

I’m assuming that the top corp big-wigs are unaware of this illegal activity and will welcome the chance to clean house of the lawbreakers before it ends up being discovered and costing the company a lot of money and bad press. 

Of course, if the company’s top brass are in on the tax evasion scheme, this won’t do much good.  In that case, the next option will be much more appealing to you.

Most tax agencies pay rewards to whistle blowers for info leading to the recovery of evaded taxes.  Turning in the lawbreakers to your state sales tax agency could result in a nice financial reward for you. 

In addition, if you are serious about a career in accounting, a job with the sales tax agency investigating this kind of thing at other companies could very well be possible if you make an impressive presentation of your findings when you turn in the tax scammers at your company. 

Of course, other options are to just remain quiet about this and stay at your current job or leave and find employment at a more law abiding company.

Good luck.  I hope this helps give you some ideas as to a course of action.  Please keep me posted as to how this plays out.

Kerry Kerstetter

Follow-Up:

Dear Mr. Kerstetter,

Thank you so much for your reply. I am actually going to quit my job at the end of the year for I just was offered an internship at a public firm for the busy tax season! However, im still trying to evaluate my decision on if I should report this or not. There is so much unethical things that happen on a store level in addition to this that I could report, yet nobody else has the courage to stand up to my superiors. I will definently keep you posted if I do decide to take action against them. Have a great day!