Question

Marvin is responsible for purchasing computers and accessories for his employer’s computer store. His cousin, David, sells computer accessories wholesale and asks him to send some business his way as he would certainly make it “worthwhile” for Marvin, if he does so. Marvin is responsible for the budget for the Purchasing Department and agrees to purchase items from David’s business but asks that he “pads” the invoice so that he can get his “cut” of the deal. David inflates the invoices by 25% and gives Marvin 10% of the excess amount. Marvin continues to do this until the internal auditors question him about the invoices. What are the business ethic problems?

Answer 1

The business ethics problems are:

1. Overbilling: Increasing unit prices while buying from suppliers which results in less profit or loss of the employer. In this case by paying higher amount for same material, same quality which are cheaply available in the market will cause auditors to question about the authenticity of supply

2. Fraud: It is kind of Deceit to obtain personal financial advantage by causing loss to the company. People who commit fraud often create invoices with rounded amounts, which are invoices without pennies. Yes, you would think the fraudster would have “cents” enough to do otherwise.

3. Dishonesty: It is of utmost importance that all business affairs are conducted in an honest manner and dishonesty causes loss of trust in business dealings and transactions of the company and employee involved in this case.

4. Break of Integrity: When customers think a company is exhibiting an unwavering commitment to ethical business practices, a high level of trust can develop between the business and the people it seeks to serve. A relationship of trust between you and your customers may be a key factor in your company's success.So once that integrity is broken, customers or suppliers will try to take advantage of its position and may sometimes supply product of low quality

5. Discrediting Professional behavior: You must comply with relevant laws and regulations and not assist others to act illegally or unethically. Falsely inflating invoices questions yours professional behavior that may discredit you and your profession.

6.Abnormal Invoice Volume Activity- It would be easy for auditors to identify the theft because there will be an abnormal increase in Invoice volume. When the cost and products will be compared from previous years data and market data, it would be easy to identify the fraud.

7. Above Average Payments per Vendor: There is a formula to identify the deviation in amount for similar products.

calculate a z-score for each invoice amount:

            z-score = (invoice amount – average amount) / standard deviation

8.sometimes companies do discover it by auditing the lawyers’ bills. Auditing of legal business has become a growth industry.