Question

You are the assistant controller at Eldora Contract Management Services (ECMS), which provides administrative support to private clients and Federal government agencies. Recently, you determined that ECMS is including direct costs of projects for private clients in overhead costs, some of which are charged to the government. You also discovered that several managers appeared to be involved in altering accounting invoices. However, you were unable to determine if your supervisors, i.e., the controller of private clients and the controller of government agencies, were involved.

You decided to write a memo to report the matter with either (1) the controllers, (2) two forensic journalists at a local newspaper, (3) ECMS’ Chief Ethics and Compliance Officer, or (4) two independent members of the board of directors that you know personally. Your memo must address what you found out and what you ask from the two people you are meeting with.

Could you help to outline this paper?

Answer 1

Eldora Contract Management Services (ECMS)

MEMORANDUM

To : ECMS' Chief Ethics and Compliance Officer

From : Assistant Controller EMCS

Re: Cost classification update

Date : October 23, 2018

For your information and review, the cost classification of projects has been discovered to be faulty. It would be right to say that the basic classification is not appropriate. The basic classification of costs of any project comprises of direct costs and direct overhead costs which are directly related to the operation of the project, in other words, the costs that are "bread and butter" of the project and indirect costs which are nothing but the support costs which basically includes the administrative and indirect overheads.

With reference to above it has been noticed that ECMS has been including the direct costs of the private clients in overhead costs. This faulty classification has been going on for quite a while and no suitable action has been taken to correct the defect. The direct costs which are due to the operation of the project have been included under overhead costs which are of supportive nature. Also, the projects are private projects and some of these costs have been wrongly charged to the government. These are private project costs and there no liability of the government to reimburse them.

It has been discovered that there is a practice of alteration of accounting invoices is going on in the organisation. It is suspected that several manager are involved in this act as per the recent discovery made but, whether the supervisors i.e. the controller of private clients and controller of government agencies were involved or not, could not be determined.

I am hereby reporting the entire matter to you so that appropriate action can be taken in this regard and we can avoid any further damage to the organisation.