Facts of the Case
A former student of Dr. Mitchell called him for advice on a potential fraud committed by their company. The bank has stopped financing the line of credit since the firm is experiencing a financial crisis and has asked them for current operating data (Beasley et al., 2012). Senior managers intentionally exaggerated sales and receivables accounts in the records (Beasley et al., 2012). The caller believes this is a fraud, and the company’s CEO and CFO have been arm-twisting the accounting staff to book sales transactions before sales occur, which do not meet the revenue recognition criteria specified by GAAP (Beasley et al., 2012). The caller said they declined to sign the commitment letter that the lender had requested since they were worried about these operations being included in the quarterly reports (Beasley et al., 2012). The person is considering their options and seeking advice on what to do.
Relevant Ethical Guidelines
The relevant ethical guidelines that the caller and Dr. Mitchell need to follow include confidentiality, integrity, objectivity, and professional behavior. The caller has a responsibility to maintain confidentiality, not reveal their identity or the company’s name to Dr. Mitchell, and seek advice on the situation without disclosing any confidential information (Agrawal, 2020). The caller also has a responsibility to act with integrity, objectivity, and professional behavior, report fraud, and protect the interests of the stakeholders.
Stakeholders in the Case
First, it is necessary to mention that there are many stakeholders in the case, including those who work directly for the company, customers, and partnering parties. The stakeholders, in this case, include the company’s shareholders, employees, customers, suppliers, the bank, external auditors, and the accounting profession (Beasley et al., 2012). The senior executives of the company have a duty to act in the best interests of the stakeholders and comply with the accounting standards and regulations.
Possible Alternatives for the Caller
The possible alternatives for the caller include many options for the caller. They can report the fraud to the company’s board of directors, report the fraud to the external auditors, report the fraud to the regulatory authorities, or resign from the company (Agrawal, 2020). Each alternative presents ethical issues that need to be considered. In some cases, the interests of the caller can be at risk, whereas in other situations, stakeholders’ interests can be violated.
Ethical Issues Arising from the Alternatives
The ethical issues arising from the alternatives include confidentiality, integrity, objectivity, professional behavior, and the protection of the interests of the stakeholders. Reporting the fraud to external auditors or regulatory authorities may breach confidentiality, and reporting the fraud to the board of directors may not be effective if they are not independent (Agrawal, 2020). Resigning from the company may not protect the interests of the stakeholders, and the caller may face retaliation.
References
Agrawal, S. (2020). Business ethics. SBPD Publishing House.
Beasley, M. S., Buckless, F. A., Glover, S. M., & Prawitt, D. F. (2012). The anonymous caller: Recognizing it’s a fraud and evaluating what to do [Case Study]. Pearson Education.