Post replies on the posts of other classmates that add something to the discussion utilizing concepts from the case, course, and ethical principles. You should not merely compliment classmates or post your feelings about their post but support your response with concepts from the assigned material for the course. See attached pdf
Statement1:
As I reviewed the case “When Change Isn’t So Good: A Story of New Management and
Misleading Statements”, I experienced a myriad of emotions. In my most recent position I was
not considered a member of management, but I was in a position in which I worked closely with
upper management and was involved in key decision making for the organization. I sympathize
with the role that Liz was put in, having dedicated her career to BFR, Inc. and had given what
she felt was her most sincere efforts; to only be confronted with blatant unethical leadership
and ultimately a decision that would affect her role with the company. After reading the IMA
Statement of Ethical Professional Practice it is difficult to determine whether any of the
principles are directly violated. In my opinion, the principles are vague and left to
interpretation, in other words subjective. Unlike financial accounting where external reports
are created, audited and standardized by government authorities, management accounting is
otherwise unregulated. The only principle I concluded was blatantly violated is the one
referring to Competence where it states, “Perform professional duties in accordance with
relevant laws, regulations, and technical standards”, (IMA Statement of Ethical Professional
Practice, pg. 2). This only because the management, in changing the accounting numbers that
were provided by Liz, are committing fraud. They’re not only altering the work of the original
owner, but also presenting to the board in a misleading way thus violating ethical principles.
Because of the misrepresentation of expenses to income being presented to the board
members they were not aware of the actual amount of money utilized to purchase facility
upgrades and the new marketing firm mentioned. This will impact the way other managing
decisions are made. For example if utilizing the numbers that were recreated by Sam and
Angela, the board members will believe that the company is in better standing than it actually
is. The Balanced Scorecard will be altered, if the organization decided to evaluate employees off
of the numbers given, versus the actual reporting done by Liz. This is detrimental to the morale
of BFR, Inc. and could ultimately cause the company to go into bankruptcy, if the CEO continues
to spend at a rate that does not counter expenses.
Liz has done the right thing by contacting the IMA Ethical Helpline. She should also express
grievances to board member Jim when given the opportunity; that way Liz is relieved of any
responsibility being that she has communicated her concerns to upper management. Finally, if
there is no reprimanding done to Sam’s team for the fraudulent reports, Liz may decide to leave
the company, herself being in good standing. Because she is a management accountant, in
order to uphold the integrity of her own career, it is only right that she departs. If she would
choose not to, her character would be in question and career on the line, even beyond her
work with BFR, Inc.
Statement2:
Which of the IMA’s overarching ethical principles are potentially
compromised by Liz’s position?
Liz is in a tricky situation within her company. It seems to me that while she definitely
wants to continue her work, she is hindered by the ulterior motives of the CFO and
CEO. While reading through the IMA ethical principles, it is obvious to me that Liz is
breaching 1.3, provide decision support information and recommendations that are
accurate, clear, concise, and timely. Recognize and help manage risk. Liz has been in
compliance, though not without giving her point of view, with some unsavory behaviors
on the CFO’s part. Liz also has compromised herself through rule 4.2, which discusses
providing relevant information that could influence decision making via intended user’s
understanding of reports, etc. Since the CFO is fabricating numbers and altering
documents while placing a clause in the preparations (prepared by management, which
Liz is a part of), Liz is culpable.
Is management perpetrating fraud? Is what they are doing illegal?
Unethical? Explain.
I think that these acts by the CFO and CEO are fraud. Similar events are occurring with
well-known folks in the news right now with multiple investigations ongoing. One part
that makes me think this is certainly fraud is the office refreshes and new buildings. To
obtain those things, the company would need to secure funding, and that means they’d
need to disclose documents and reports to an outside lender. The inflated projections
could sway the decision makers for the lenders who might decide to give the funding to
the company based on these reports. While it might not be illegal outright, since there
are no external people who are reviewing these reports (except in the case noted above
where the company needs to secure funds), it places the company in an awkward
position of having to explain why there is not enough revenue to cover the operating
costs at the end of the fiscal year.
How does the misleading information impact decision-making? What
damages could potentially be caused by the misleading information?
As I noted above, the information could negatively impact decision making because the
board of directors may give the “OK” for rather hefty costing programs or projects. An
example may be that the board of directors deciding to outsource a marketing team to
work with the company when the funds are simply not there, as the reports have been
inflated. The consequences of these faulty reports and questionable actions would be
terrible for the long-term health of the company. Over time, there will not be enough
money to cover the costs of operating the company and it may fail.
If you were a board member and found out about the changes and
discrepancies in the material presented, how would you feel?
If I were a board member, I would want to hold a special meeting with the other
members of the board to vote on restructuring the company and I might hire another
internal auditor to double-check all the reporting coming through. I would definitely want
to get some answers from the CFO and CEO, including their sources of information to
account for the inflation in projected revenues and the increases in unrestricted cash,
etc.
Identify the stakeholders in this case. Then discuss how Liz’s decision
may impact the stakeholders.
The stakeholders in this case would be the board of directors, as they are in place to
direct the company, vote on programming, projects, etc, as well as the employees in the
company, because these reports ultimately have an effect on salaries/wages and the
company’s health, and the executives, as they have to answer for their decisions and
they also have to engage with the board of directors and make important decisions with
regards to the company’s functions and futures.
What do you recommend Liz do? Be sure to defend your answer.
I think that Liz should talk to Jim but she should explain in depth how she has tried to
have conversations with Alexis about the reports. She should comment to him about her
being left out of the meetings and being in the dark about what the CFO and CEO are
planning and including in their budgeting reports. If Liz is upfront and explains the
situation and her part in it, she could create a long term positive reaction. Liz might want
to give her old executive director, James Sims, to get advice from him before her
meeting. Since Liz has been in the company for so long, she may have a good
relationship with him and the board of directors, which helps her. If Liz does not voice
her opinions, she in complicit with what is going on because she is aware of it being
incorrect and not reporting this to the board of directors. Her being a bystander violates
the IMA principles and Liz could lose her job anyway, because the company may end
up failing. It is clear that the CEO does not have the same emotional ties to the
company that Liz does, and if she truly wants to be on the right side of the dilemma, she
should plan to discuss these matters with Jim, even if she feels like she is going behind
the CFO/CEO’s backs.
Statement3:
Liz, after reviewing the IMA Statement of Ethical Professional Practice, the majority of
the overarching principles are potentially compromised by your position: Competence,
Integrity and Credibility. As a member of the IMA, it is your responsibility to uphold the
standard of Competence, which states that members are responsible for providing
decision support and recommendations that are accurate. Since you became aware the
financial projections were intentionally being fabricated by senior management; I can
understand your hesitancy in coming forward out of fear of retaliation. However, it is
your moral duty to report these unethical practices as it has the potential to jeopardize
your professional licensure, IMA Membership as well as more serious legal
consequences. Management’s attempt at pacifying you by making an ambiguous
statement at the end of the report that, “the numbers were prepared by management,”
will not absolve you of your ethical responsibility. Liz, you are also considered
management, so that statement would not exonerate you as it does not clearly state you
are not responsible for the inaccurate projections. Thusly, this could have negative
implications on your career. Additionally, Integrity is another principle compromised by
your position. You are responsible to abstain from engaging in or supporting any activity
that might discredit the profession. Although you are an unwilling participant, your
failure to act or speak out incriminates you along with the other senior executives.
Lastly, you would not be upholding the IMA standard of Credibility because the
projections were intentionally falsified to deceive the Board of Supervisors. You are
responsible for providing all relevant information that could reasonably be expected to
influence an intended user’s understanding or report any deficiencies in information or
internal controls in accordance with organizational policy or law.
Fraud is essentially deception intended for personal gain. Therefore, it appears
management is perpetuating fraud. The CEO is very intentional with his actions to
misrepresent the organization’s revenue as he refused to share his rationale behind the
inaccurate projections. This is a good indicator there is likely personal gain in falsifying
this important information, which is unethical. If this same falsified information is
reported to the IRS, then there will be legal implications for all involved and the company
could lose its 501(c)(3) status.
The Board of Supervisors should be well-informed as its purpose is to operate in the best
interest of the organization. The inaccurate projections presented by management to
the Board of Supervisors, interferes with the Board’s ability to oversee the organization’s
operations and make sound decisions on expenditures. As a board member, I would feel
betrayed and lose all confidence and trust in the senior management’s ability to
effectively run the company. Irreparable damage could be done to the company if
decisions on future expenditures are made with misleading or falsified information. The
company’s future is dependent upon projections made by management; and could prove
detrimental to the company as you projected expenses to exceed revenues. As a result
of this deliberate mismanagement and falsification, BFR will not be able to sustain itself.
Liz, the decision to come forward is a difficult one. However, if you remain silent, it will
have far-reaching implications for you and your future. It will also have very serious
consequences for all the stakeholders such as: the Board of Supervisors, the employees,
the company donors and the consumers seeking addiction support certification.
Although the Board of Supervisors were deliberately misled by management, in the
public’s eye – the Board will share in the blame for the company’s downfall as they are
responsible for providing oversight. Employees will lose their livelihood, and donors and
the consumers will take a financial loss as well.
I can imagine your frustration and fear as your professional career, credibility and
integrity are at stake. I would strongly advise you to seek legal advice to determine the
legal and most ethical way to handle this and to protect yourself. The Whistleblower
Protection Act can provide you with protection from retaliation for disclosing this
information. It can provide you with protection from economic loss, emotional distress
and safeguard your reputation. No one wins in this situation; it is better to do something
now before it is too late.
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