What is the ethical thing to do in this circumstance?You are the assistant treasurer in charge of general ledger accounting at the business. Your company has a large loan from an insurance company....

What is the ethical thing to do in this circumstance?

You are the assistant treasurer in charge of general ledger accounting at the business. Your company has a large loan from an insurance company. The loan agreement requires that the company's cash account balance be maintained at $500k or more, as reported monthly. At June 30 the cash balance is $400k, which you report to Shirley, the financial vice president. shirley excitedly instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Ms. Shirley says, “If we don't get that cash balance over $500K, we'll default on our loan agreement. They could close us down, put us all out of our jobs!” Ms. Shirley continues, “I talked to Oconto Distributors (one of Springtime's largest customers) this morning. They said they sent us a check for $100K yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we'll be in the clear. It's in the mail!”

Expert Answers
Karen P.L. Hardison eNotes educator| Certified Educator

This makes me think of the New Testament parable of the embezzling estate steward who is caught yet is given one week to clear his affairs before exiting his post for good. He spends the week contacting all the debtors who owe money to the estate holder and negotiates a reduction of their debts with them. Now, when he exits at the end of his week, he has friends waiting for him who owe him kindnesses in return for his assistance. If this parable isn't a paradox, I don't know what is.

Apart from the spiritual analogy, the parable is used to teach us to be shrewd as foxes and make sure we don't go out into a cold world any more ill prepared than need be--the parable does not condone the initial embezzlement, by the way. It seems to me this draconian loan agreement scenario falls into the same category. It seems that Ms. Shirley is acting the part of the crazy like a fox almost-ex-employed estate steward and making a way for future good at the expense of little present manipulation of factors. The Wisdom Book of Proverbs says naivete and gullibility are two of the four worst offenses against God's precepts, so it seems to me the ethical thing to do is be the shrewd fox and prepare for the cold world that can devastate if taken on blindly.

jovip18 eNotes educator| Certified Educator

The reality is when push comes to shove within the business world, people that report their own company or bosses for infractions are labeled as a whistleblower.  It is almost childish, but the business world is very clear when it comes to the ways in which “tattle-tales” are dealt with.  As an employee, your obligation to the company is viewed as paramount above all else.


This mentality is why so many unscrupulous dealings go unreported.  The problem is that most of them are not as nearly clear as the example given.  Additionally, no one is talking about the obligation towards the other employees who rely on their job to feed their families.  What about the companies that deal with this business and depend on them to also remain active and profitable?  What about the reputation of the insurance company in question?  Do they have a record of dealing fairly and honestly with their customers, or are they known for manipulating situations to their advantage. 


It is easy to see things as black and white, but very few people, from any walk of life, approach every situation with a clear set of ethics.       


stolperia eNotes educator| Certified Educator

I agree with a previous poster - the responsible thing for you to do is to start looking for another job as soon as possible!

The setup of your scenario shows its age when your boss states that "the check is in the mail". In this era of electronic money transfers, I can't imagine any business paying that amount of money for goods received with a paper check delivered by the United States Post Office. The financial ledger would probably also be kept on computer, which would provide time verification of when payments were received that would prove you were ignoring the very strange limitations of the loan agreement's deadline requirements.

Ethically, you need to follow the requirements of the loan agreement and deal with any ramifications as/if they occur. Realistically, I don't think this set of circumstances is at all likely - so don't spend a lot of time worrying about this situation. There are too many other possibilities that are much more likely!

pohnpei397 eNotes educator| Certified Educator

I suppose that the ethical thing to do is to refuse to hold the books open, report the real balance on the books as of June 30, and take whatever the consequences are.  However, I can't really see doing this.

First of all, this sounds like a really contrived condition on the loan.  If your balance one day can be enough to cause the creditor to close you down, but the balance on the next day allows you to stay open, it's kind of a dumb condition.  The creditor would be shutting you down when you could easily show it that you are solvent.

Since this is such a dumb condition, and since the consequences are so great, I'd hold the books open (assuming the insurance company is dumb enough to be relying on me to report this in the first place).

Kristen Lentz eNotes educator| Certified Educator

I agree with the above post.  I think one of the most obvious actions to take, especially in bookkeeping, is one of transparency and honesty.  In the scenario with the insurance company, which does sound arbitrary and contrived, the Springtime company could easily show the loan officer their books and an 'e-statement' for the $100,000 to prove their solvency or meeting the loan's agreement.  Having a boss like Ms. Shirley who asks you to do something under the table is one of the worst situtations an employee can be in professionally; Ms. Shirley is not to be trusted, and I would recommend that the employee should immediately start looking for another job. 

Lorraine Caplan eNotes educator| Certified Educator

Really, "the check is in the mail" does not relieve you of your duty to maintain records accurately and properly. What happens if the check is not on its way?  Then you will want to compound your unethical act.  Besides, in today's world of electronic banking, large sums of money can be transferred from one account to another pretty much instantaneously.  It would be far better to do what it is you are supposed to do and hope the lender will not call in the loan.  There are times that ethical behavior can be painful, to yourself and others, but if you do not act ethically, it can be far more painful later on.  Enron is an excellent example. 

rrteacher eNotes educator| Certified Educator

I have to agree with response 3. Is it necessarily ethical to knowingly cost people their jobs when such an arbitrary condition, that will almost certainly be met, is all that is standing in the way? Anyway, perhaps the thing to do would be to communicate the circumstances to the creditor, who would probably find it in their interest to be reasonable in this situation.

litteacher8 eNotes educator| Certified Educator

Crazy.  This is an odd situation.  What is going on with this loan?  Given the circumstances, I think the best thing to do is try to get the $100,000 faster somehow, or take out a cash loan for that amount.  If the company is getting payouts that big and only has $400,000 in the bank, it is not a financially sound company and I would start looking for another job.