Question

Tiffany Lyons was just hired as the assistant treasurer of Key West Stores. The company is a specialty chain store with nine retail stores concentrated in one metropolitan area. Among other things, the payment of all invoices is centralized in one of the departments Tiffany will manage. Her primary responsibility is to maintain the company’s high credit rating by paying all bills when due and to take advantage of all cash discounts.

Jay Barnes, the former assistant treasurer who has been promoted to treasurer, is training Tiffany in her new duties. He instructs Tiffany that she is to continue the practice of preparing all checks “net of discount” and dating the checks the last day of the discount period. “But,” Jay continues, “we always hold the checks at least 4 days beyond the discount period before mailing them. That way, we get another 4 days of interest on your money. Most of our creditors need our business and don’t complain. And, if they scream about our missing the discount period, we blame it on the mailroom or the post office. We’ve only lost one discount out of every hundred we take that way. I think everybody does it. By the way, welcome to our team!”

Respond thoroughly to the following questions in your reflective essay:

    What are the ethical considerations in this case?
    Who are the stakeholders that are harmed or benefited in this situation?
    Should Tiffany continue the practice started by Jay? Does she have any choice?
    Based on your chosen code of conduct principle(s), what would you do (step-by-step) in order to act in accordance with your chosen principle to address this situation?

Answer 1

The ethical consideration in this case is “do no harm”. The practice of paying the checks at a later date but dating the checks within the time limit of the discount period is harming the commercial consideration of Key West Stores’ creditors, suppliers and vendors. Secondly the ethical consideration in this case is “adhering to proper and acceptable business practices”. Key West Stores is not managing its payment policy in a proper manner and in a manner that is apt as per the acceptable financial and accounting norms.

The stakeholders that are harmed in this situation are the creditors of Key West Stores. The creditors, in this situation, have to give discount to Key West even though they are not receiving the payments on time.

No, Tiffany should not continue the practice started by Jay. She has the choice of discussing this with higher management of Key West Stores. She can tell them that this practice will not be beneficial for the store in the long run as the company is losing its image and face in front of its suppliers and creditors and they will not look to do business with us if we continue to cheat them in this manner.

My chosen code of conduct principle is that of AICPA. AICPA’s code is based on values like integrity, objectivity and professional behavior. In this case there is a clear violation of values of integrity and professional behavior. In order to act in accordance with the principles here I will first highlight the issue to the senior management and apprise them that their practice of paying the creditors’ is unethical. If the management is a part of this and refuses to rectify their actions then I will report the same to relevant regulatory authorities.