What should an assistant controller of a general ledger do when faced with an ethical problem in the workplace?
You are the assistant controller in charge of general ledger accounting at Springtime Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the company's cash account balance be maintained at $200,000 or more, as reported monthly. At June 30 the cash balance is $80,000, which you report to Anne Shirley, the financial vice president. Anne 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. Anne says, “If we don't get that cash balance over $200,000, 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 $150,000 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!”
GIVEN THAT YOUR BOSS, IS "EXCITEDLY TELLING YOU TO KEEP THE BOOKS OPEN", WHAT DO YOU DO?
Making what a person assumes to be the wrong decision for the right reasons can have serious repercussions.
First and foremost, the employer (Anne Shirley) is unprofessional, especially as the financial vice-president. She carries a level of trust that employees rely on and the assistant controller would obviously feel obliged to follow instructions, regardless of his or her own beliefs. It does not appear to be a request either.
Secondly, for a vice-president to feel the need to explain the circumstances to an assistant controller shows that she knows the actions are unethical. She is trying to share the blame (if anything goes wrong later) and can always make the controller the scape-goat. Who would the shareholders believe if there was an enquiry?
Next, it is 2013 and "checks" are not only not favored, they are not generally used for amounts of this magnitude ($150 000). Electronic Funds Transfers, whilst they may take a day between different banks, are an almost immediate form of cash payment. Furthermore, they show receipted payment dates so that, if it did take an extra day, the company could at least show that the payment had been made in time - or certainly within a time frame that the insurance company could probably accept.
Communication is key in any enterprise and the vice president should be calling the insurance company and asking for a concession from them - not asking a controller to take risks he or she should not have to.
Of course, the vice president should not have waited until this late stage when she must have been aware of the problem. Transparency, especially in the financial realm is crucial to any success and Anne Shirley could have made the insurance company aware sooner as they would have been more inclined to trust her motives if she was honest with them.
A major difficulty for the controller is also that once she has taken such a risk on behalf of the company, the vice president may ask for other unethical practices to be overlooked and the controller could unwittingly become embroiled in real financial misconduct. There is no replacement for honesty and
ethical behavior in business serves the individual and the enterprise much better in the long run.
A vice president who does not know this - especially one in charge of finance - should not be the vice president. Hence, at the end of the day, the controller should stand his or her ground.
- Offer to draft a letter to the insurance company asking them for a concession to do this - it can be emailed.
- Offer to call the customer and ask them to do an online bank transfer.
- Close the books in terms of teh accounting procedures and advise Anne Shirley that she will unfortunately have to explain the situation to the insurance company.
The bullying tactics of such an employer are not acceptable.
(a) You, as assistant controller, may suffer some negative effects from Gena Schmitt, the financial vice-president, if you don’t follow her instructions. Maybe the insurance company will react the way Gena suggests, but probably not.
If you comply and falsify the June 30 cash balance by holding the cash receipts book open for one day, you will suffer personally by sacrificing your integrity. If you are found out, you could be prosecuted for preparing a fraudulent report. The insurance company, as the lender and creditor, is deceived.
(b) Holding the cash receipts book open in order to overstate the cash balance is a fraudulent, deceitful, unethical action. The financial vicepresident should not encourage such behavior and a controller should not follow such instructions.
(1) You can follow the vice-president’s instructions and misstate the cash balance—which is wrong!