Question

Controllership in Accounting

Topic: Violations of Internal Control

Michael has been recently hired as the Distribution Supervisor for an international candy

company. The plant is in a rural area and is about to begin a major expansion that will triple

its capacity. The company has generous benefits and has paid all moving expenses for Michael

and his family. During the move, however, the movers damaged a large piece of oak

furniture. Michael has contacted the moving company. The insurance is by the pound and

would cover only a small part of the worth of the item. Michael has explained this to the

moving company, but it refuses to reimburse him for the item’s value.

Michael approaches his supervisor, Richard, about the problem. Michael has been on the job about a

month and enjoys the partnership they have developed to date. Michael had originally

interviewed with Richard, and Richard’s recommendation had been a major factor in Michael’s getting

the job. Michael has found the types of challenges he was looking for in a new position and is

already becoming a major player in planning for the new expansion.

Richard tells Michael that he does not think he can do anything to persuade the moving company to

reimburse Michael and suggests that Michael pad his next few expense reports to cover the cost.

Michael is surprised at Richard’s suggestion, because thus far Richard has dealt with him in a very

evenhanded manner and has appeared to have strong business ethical standards.

Answer the following questions from the case above :-

1. What are the relevant facts of the case?

2. What, if any, are the ethical issues?

3. Who are the stakeholders?

4. What are the possible alternatives including any ethical concerns?

5. What are the practical constraints?

6. What action(s) should be taken?

Answer 1

1. Relevant facts of the case

An international candy company recently hired a new Distribution Supervisor named Michael. The candy company paid for Michael’ moving company and expense. During the move, a large piece of oak furniture was damaged along the way. Michael inquired a reimbursement from the moving company, but only received a little. Michael’ boss, Richard, suggested that Michael pad his next couple of expense claims from the candy company. Richard has been the main reason why Michael was able to get this job and Michael is excited about the challenges.

2. Ethical issues

The problem is that Richard is suggesting that Michael should mark up his expense reports to reimburse his damaged furniture. The ethical issue is that if Michael were to pad his expense, he would be committing fraud to the candy company which he enjoys. The main question is should Michael follow what Richard suggested and go through with it?

3. Stakeholders

The primary stakeholders are Michael the Distribution Supervisor, Richard the Supervisor, the candy company, and the moving company.

4. Alternatives

The alternatives are that Michael can take legal action against the moving company. Michael can talk to someone in a higher position than Richard and see if they can help. Michael could drop the problem and paid for it out of his own pockets. Michael could also expose Richard’s plan to the HR board. Michael could pad his expense report and lastly, Michael can do nothing about it.

Alternative 1

Taking legal action has some pros and cons, some are that Michael will most likely take on the legal fees attached to the case, this option is fair to Michael, it does not get the candy company involved, and that a legal and just solution will be presented to both sides.

Alternative 2

If Michael takes to a higher position manager and see if they can help. This action could offend Richard and their interaction with each other in the future and head office could do nothing about. This option is fair for Michael, but will not be for Richard. Since, Richard already gave his “best” opinion to Michael and he ignores it, the probability of having problems in the future is higher.

Alternative 3

If Michael takes his own money and pays for it, then it will not be fair for Michael. Since, Michael was asked to move to a new location and that everything should be covered in his move.

Alternative 4

Michael could expose the idea of padding the expense report to HR and potentially ruining Richard’s career and reputation in the company. Michael will be doing the right thing, but does not solve anything for his damage situation.

Alternative 5

Michael padding the expense reports could indeed pay for the damages of the furniture. The negative side is that Michael will be committing fraud against his new company. This option is not fair for the candy company.

Alternative 6

Lastly, Michael can do nothing about this and drop the entire case. This option is not fair or just for Michael. He just moved and nothing will be solved for him. Michael will be replacing the furniture himself and the cost could be large.

6. Action

I recommend that Michael should take legal action and expose Richard to the HR board. This option will be best option for Michael, since he will have a fair and just solution between him and the moving company. Another is that the company will know of Richard’s ethical issues, whether the company decides to take any action is not in Michael’s hand anymore. The other options are valid solutions, but these actions only solve one of Michael’s problems. A mixture of two is the best solution for Michael at this stage.