Reference no: EM131086941
Case Analyses Required Format:
Facts
Briefly summarize the relevant facts of the case.
Issues
Identify all of the operational, behavioral, ethical and accounting issues that are important in the case. You will have multiple issues in each category.
Possible Courses Of Action
Identify all of the realistic courses of action to resolve the issues in this case. Put yourself in the place of the principal player in the case. Analyze each course of action and evaluate the consequences of each action from the perspective of the principal player.
Best Course Of Action
After evaluating each alternative, decide on a course of action and RECOMMEND your choice. You must make a choice as to which course of action should be pursued and state the reasons why this course of action is the best one for the case.
Additional information for writing the case analyses:
• Write in the third person. Do not use ‘I' or ‘me' when writing this paper.
• You are writing this analysis to a busy executive in your company. That applies to the tone, content, approach and organization.
• Use business terms, not street or conversational structures.
• Use spell check. Spelling and sentence structure is important in your business writing. Poor grammar and spelling distracts from your message in the eyes of the reader. Your score on each paper will reflect your English writing ability.
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• Font: Arial 11 point
• Spacing: double space
• Margins: Normal (1 inch)
• Indent the first line of each new paragraph
• Total number of pages (not including the title page) should be a minimum of 5 full pages.
• Number your pages at the bottom center.
• No headers or footers (no footers other than the page number at bottom center).
• No graphics, tables, figures or bullet point lists on any of the pages including the title page.
Case:
In 2012, when Peggy Nelson decided to leave Saks, Jasper, & Bowen (SJB) CPA firm and go to work in private business, the job with Better Co. (BC) seemed like an excellent opportunity. BC had been a client of SJB and Peggy had been involved on work for BC. Peggy knew that BC was a growing, basically healthy concern whose owners were notable people in the community. Having had the opportunity to work with them, Peggy knew that both the owners and the employees were congenial.
The work could be challenging. BC consisted of a series of more than twenty small businesses owned in part or in full by the Gowan family. The businesses were interrelated in that one business, run by one member of the family, would be involved in one stage of a project and another business, run by another member of the family, would be involved in another. Funds would flow from one segment to another depending on the stage of the projects. Several of these projects involved government financing. As controller, Peggy would be expected to see that the books for all the interrelated businesses were kept correctly, that incomes and expenses were assigned properly, and that government requirements were met.
As is not unusual, it was especially important and difficult to make sure that the government work was properly documented. One of the factors that added to the difficulty was that the agency concerned with financing BC's projects would allow only a certain percentage of profit on each project. It was actually in conjunction with this government work that Peggy had become acquainted with BC. Peggy had been involved in a review that was designed to ensure that BC was following all the proper government guidelines. The review was done carefully in accordance with government agency standards and no problems were found.
Not long after starting work, Peggy noticed that a number of checks made out to an outside consultant and billed to the government work were endorsed over to one of the Schedule C units of the business and regularly deposited in the account of that unit. The consultant did, in fact, do work for the concern and was paid by the firm for his work. Such work and such charges were ordinary and customary in BC's line of business. But Peggy discovered that a significant number of checks (totaling approximately $225,000) made out to the consultant were being deposited in the account of the most volatile of the business units. Profits for this unit were in excess of $4,000,000.
The bank had asked for second signatures on only about two out of fifty checks made out to the consultant and deposited in the BC unit's account. The deposits were recorded on BC's books as donated capital. Peggy was instructed not to send the consultant a 1099 form.
Peggy, wanting to clear up the apparent contradictions in the process and assuming that there was a logical explanation, approached one of the family members/unit managers for information. The manager admitted quite freely that they were adding the consultant's fee to the costs associated with the government projects and a secretary was writing the signature of the consultant on the checks. The manager was not a particularly sophisticated businessperson and seemed to see nothing particularly wrong with the practice.
Peggy went to the family member who was managing the unit receiving the funds and that member simply referred Peggy to the family member who had the greatest authority for the overall business. Peggy approached this person with the information and was told that it was necessary to do this to survive and that if a problem were to develop that it would be "handled when it got there." As the manger had considerable political clout, it might be quite true that it could be handled.
In Peggy's college classes, ethics were discussed, but those discussions nearly always centered around the ethics associated with being a member of a public accounting firm. Confidentiality was one of the ethical cornerstones. Peggy had serious question about whether it was a breach of confidentiality to go to anyone outside the business with the information. What's more, there was a very real chance that nothing would ever be done.