Question

In: Accounting

Manny Carson, certified management accountant and controller of Wakeman Enterprises, has been given permission to acquire...

Manny Carson, certified management accountant and controller of Wakeman Enterprises, has been given permission to acquire a new computer and software for the company's accounting system. The capital investment analysis showed an NPV of $100,000. However, the initial estimates of acquisition and installation costs were made on the basis of tentative costs without any formal bids. Manny now has two formal bids, one that would allow the firm to meet or beat the original projected NPV and one that would reduce the projected NPV by $50,000. The second bid involves a system that would increase both the initial cost and the operating cost.

Normally, Manny would take the first bid without hesitation. However, Todd Downing, the owner of the firm presenting the second bid, is a close friend. Manny called Todd and explained the situation, offering Todd an opportunity to alter his bid and win the job. Todd thanked Manny and then made a counteroffer.

  • Todd: Listen, Manny, this job at the original price is the key to a successful year for me. The revenues will help me gain approval for the loan I need for renovation and expansion. If I don't get that loan, I see hard times ahead. The financial stats for loan approval are so marginal that reducing the bid price may blow my chances.

  • Manny: Losing the bid altogether would be even worse, don't you think?

  • Todd: True. However, if you award me the job, I'll be able to add personnel. I know that your son is looking for a job, and I can offer him a good salary and a promising future. Additionally, I'll be able to take you and your wife on that vacation to Hawaii that we've been talking about.

  • Manny: Well, you have a point. My son is having an awful time finding a job, and he has a wife and three kids to support. My wife is tired of having them live with us. She and I could use a vacation. I doubt that the other bidder would make any fuss if we turned it down. Its offices are out of state, after all.

  • Todd: Out of state? All the more reason to turn it down. Given the state's economy, it seems almost criminal to take business outside. Those are the kind of business decisions that cause problems for people like your son.

Required:

  1. Evaluate the ethical behavior of Manny. Should Manny have called Todd in the first place? Would there have been any problems if Todd had agreed to meet the lower bid price?? Identify the parts of the Statement of Ethical Professional Practice (Chapter 1) that Manny may be violating, if any.

Solutions

Expert Solution

The declaration that Manny would usually have taken the first bid without reluctance suggests that the bid met all of the prescribed necessities delineated by the company. If Manny’s friend had met the bid as invited, then apparently Manny would have presented the business to his friend. The reason for this was friendship and maybe carried with it past experience in dealing with Todd’s company. Possibly there was some ambiguity in Manny’s mind about the low bidder’s capability to perform the necessities of the bid, particularly since the winning bid was from out of state. If there was some genuine worry about the winning bid and Manny was confident of removing this concern by dealing with a known quantity, then it could be contended that the call to Todd was admissible. If, on the other hand, the only cause was friendship and Manny was confident that the winning bid could perform (as he appears to have been), then the call was unfitting. Confidentiality and integrity in carrying out the firm’s bidding policies are essential.

The fact that Manny was tempted by Todd’s temptations and seemed to be inclined toward accepting Todd’s original offer compounds the difficulty of the issue. If Manny actually accepts Todd’s offer and grants the business at the original price and accepts the gifts, then his behavior is unquestionably unethical. Some of the IMA’s standards of ethical conduct that would be violated are listed below (2013):

II.    Confidentiality

          1.    Keep information confidential except when disclosure is authorized or legally required.

          3.    Refrain from using confidential information for unethical or illegal advantage.

III.   Integrity

          2.    Refrain from engaging in any conduct that would prejudice carrying out duties ethically.


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