Part A
Case 1-3 Unintended Consequences
Veronica Betterman, a fifth-year accounting major at Anywhere University, wakes up in a cold sweat. Like many accounting majors, Veronica did an internship in public accounting the previous spring resulting in a full-time job offer with Anywhere CPAs to start after she graduates this spring which she readily accepted.
Now in her fifth and final year, Veronica decided she wanted to see what other job opportunities might be out there. So, she went through her university’s career fair just two weeks before and was invited to participate in six on campus interviews. Five of those potential employers then invited her to their offices for another round of interviews. She received full-time job offers from four of the five and has yet to hear from the last. Her deadline for deciding on the first of those offers is two days away and she does not know what to do.
While everyone tells her that she should be excited, she is not. She is scared. Worried she may make the wrong decision, she seeks advice from her academic advisor. Her advisor listens to Veronica’s dilemma and to Veronica’s surprise the advisor tells her that she should never have gone through the career fair, done any of those recent interviews, or be contemplating anything other than starting at the firm she interned with.
The advisor stated that she has made a commitment with that company that she has to honor. To do otherwise would be a breach of ethics and is not only an indication of a lack of integrity on Veronica’s part, but could cause irreparable harm to the university. He requests that Veronica meet with him again the next day after she prepares a list of all the potential consequences that could happen (to her, the internship program, the other employers, the university, other students) should she take a job with one of the other potential employers.
Veronica gets out of bed, opens up her laptop, and starts working on the list of consequences.
1.
Analyze Veronica’s actions using the Six Pillars of Character. What does her behavior tell you about her character? (no less than 150 words)
Case 2-1 A Team Player? (a GVV case)
Barbara is working on the audit of a client with a group of five other staff-level employees. After the inventory audit was completed, Diane, a member of the group, asks to meet with the other employees. She points out that she now realizes a deficiency exists in the client’s inventory system whereby a small number of items were double counted. The amounts are relatively minor and the rest of the inventory observation went smoothly. Barbara suggests to Diane that they bring the matter to Jessica, the senior in charge of the engagement. Diane does not want to do it because she is the one responsible for the oversight. Three of the other four staff members agree with Diane. Haley is the only one, along with Barbara, who wants to inform Jessica.
After an extended discussion of the matter, the group votes and decides not to inform Jessica. Still, Barbara does not feel right about it. She wonders: What if Jessica finds out another way? What if the deficiency is more serious than Diane has said? What if it portends other problems with the client? She decides to raise all these issues but is rebuked by the others who remind her that the team is already behind on its work and any additional audit procedures would increase the time spent on the audit and make them all look incompetent. They remind Barbara that Jessica is a stickler for keeping to the budget and any overages cannot be billed to the client.
2.
Explain what Barbara should do if she reasons at each of the stages of Kohlberg’s model. (no less than 150 words)
Case 3-2 Rite Aid Inventory Surplus Fraud
Occupational fraud comes in many shapes and sizes. The $12.9 million dollar fraud and kickback scheme at Rite Aid is one such case.
In February 2015, Jay Findling, a New Jersey businessman, pleaded guilty to charges of conspiracy to commit wire fraud.
Former vice president, Timothy Foster, pleaded guilty to making false statements to authorities. On November 16, 2016, Foster was sentenced to five years in prison and Findling, four years. Findling and Foster were ordered to jointly pay $8,034,183 in restitution. Findling also forfeited and turned over an additional $11.6 million to the government at the time he entered his guilty plea. In sentencing Foster, U.S. Middle District Judge John E. Jones III expressed his astonishment that in one instance at Rite-Aid headquarters, Foster took a multimillion dollar cash pay-off from Findling, then stuffed the money into a bag and flew home on Rite Aid’s corporate jet.
The charges relate to a nine-year conspiracy to defraud Rite Aid by lying to the company about the sale of surplus inventory to a company owned by Findling when it was sold to third parties for greater amounts. Findling would then kick back a portion of his profits to Foster. Foster’s lawyer told Justice Jones that, even though they conned the company, the efforts of Foster and Finding still earned Rite Aid over $ 100 million “instead of having warehouses filled with unwanted merchandise.” Assistant U.S. Attorney Kim Daniel focused on the abuse of trust by Foster and persistent lies to the feds.
“The con didn’t affect some faceless corporation, Daniel said, “but harmed Rite Aid’s 89,000 employees and its stockholders.” Findling’s attorney, Kevin Buchan, characterized his client as “a good man who made a bad decision.” “He succumbed to the pressure. That’s why he did what he did and that’s why he’s here,” Buchan said during sentencing.
Findling admitted he established a bank account under the name “Rite Aid Salvage Liquidation” and used it to collect the payments from the real buyers of the surplus Rite Aid inventory. After the payments were received, Findling would send lesser amounts dictated by Foster to Rite Aid for the goods, thus inducing Rite Aid to believe the inventory had been purchased by J. Finn Industries, not the real buyers. The government alleged Findling received at least $127.7 million from the real buyers of the surplus inventory but, with Foster’s help, only provided $98.6 million of that amount to Rite Aid, leaving Findling approximately $29.1 million in profits from the scheme. The government also alleged that Finding kicked back approximately $5.7 million of the $29.1 million to Foster.
Assume you are the Director of Internal at Rite Aid and discover the surplus inventory scheme. Explain the steps you would take to determine whether you would blow the whistle on the scheme by applying the requirements of Exhibit 3.15 on subordination of judgment. In that regard, answer the following questions.
3.
Assume you have decided to report the fraud. What would your first step be? That is, to whom would you report the fraud and why? (no less than 150 words)
Part B
4.
Explain the steps that should be taken by an internal accountant/CMA when there is a difference of opinion with one’s supervisor on an accounting or financial reporting manner. (no less than 120 words)
5. As an executive in a mid-sized manufacturing firm, Cal finds himself thrown together with Harry, who works for a division of the firm that Cal supervises. He and Harry are in the same community; their children are in the same schools; they often show up at the same social functions; and they play golf together fairly frequently.
One day, to Cal’s deep dismay, he hears that Harry has been implicated in some financial irregularities at work. The issues while serious leave some room for doubt. There is reason to think Harry got ensnared by regulations, though he may have afterward tried to cover up that entanglement by being less than forthright. Yet after what Cal observes to be a careful audit and investigation, Harry is let go from his job. Harry comes to Cal and asks for a letter of recommendation.
What should Cal do? What are the consequences of the options? (no less than 120 words)
6.
Explain how an ethical workplace culture can be best established. (no less than 120 words)
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