Paul Sarver is the controller of a corporation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. At the moment, however, the company is experiencing financial difficulties; and because of inadequate working capital, it is on the verge of defaulting on a note held by its bank.

At the end of the most recent fiscal year, the company's president instructed Sarver not to record several invoices as accounts payable. Sarver objected since the invoices represented bona fide liabilities. However, the president insisted that the invoices not be recorded until after year-end, at which time it was expected that additional financing could be obtained. After several very strenuous objections—expressed to both the president and other members of senior management—Sarver finally complied with the president's instructions.

Required:

1. Did Sarver act in an ethical manner? Explain.
2. If the new product fails to yield substantial profits and the company becomes insolvent, can Sarver's actions be justified by the fact that he was following orders from a superior? Explain.

Ridell University is a large private school located in the Midwest. The university is headed by a president who has five vice presidents reporting to him. These vice presidents are responsible for auxiliary services, admissions and records, academics, financial services (controller), and the physical plant.

In addition, the university has managers who report to these vice presidents. These include managers for central purchasing, the university press, and the university bookstore, all of whom report to the vice president for auxiliary services; managers for computer services and for accounting and finance, who report to the vice president for financial services; and managers for grounds and custodial services and for plant and maintenance, who report to the vice president for the physical plant.

The university has four colleges—business, humanities, fine arts, and engineering and quantitative methods—and a law school. Each of these units has a dean who is responsible to the academic vice president. Each college has several departments.

Required:

1. Prepare an organization chart for Ridell University.
2. Which of the positions on your chart would be line positions? Why would they be line positions? Which would be staff positions? Why?
3. Which of the positions on your chart would have a need for accounting information? Explain.

Adam Williams was recently hired as assistant controller of GroChem, Inc., which processes chem-icals for use in fertilizers. Williams was selected for this position because of his past experience in chemical processing. During his first month on the job, Williams made a point of getting to know the people responsible for the plant operations and learning how things are done at GroChem.

During a conversation with the plant supervisor, Williams asked about the company procedures for handling toxic waste materials. The plant supervisor replied that he was not involved with the disposal of wastes and suggested that Williams might be wise to ignore this issue. This response strengthened Williams' determination to probe this area further to be sure that the company was not vulnerable to litigation.

Upon further investigation, Williams discovered evidence that GroChem was using a nearby residential landfill to dump toxic wastes—an illegal activity. It appeared that some members of GroChem's management team were aware of this situation and may have been involved in arranging for this dumping; however, Williams was unable to determine whether his superior, the controller, was involved.

Uncertain how he should proceed, Williams began to consider his options by outlining the following three alternative courses of action:

• Seek the advice of his superior, the controller.
• Anonymously release the information to the local newspaper.
• Discuss the situation with an outside member of the board of directors with whom he is acquainted.

Required:

1. Discuss why Adam Williams has an ethical responsibility to take some action in the matter of GroChem, Inc., and the dumping of toxic wastes. Refer to the specific standards (competence, confidentiality, integrity, and/or credibility) in the Statement of Ethical Professional Practice established by the Institute of Management Accountants to support your answer.
2. For each of the three alternative courses of action that Adam Williams has outlined, explain whether or not the action is appropriate according to the Statement of Ethical Professional Practice established by the Institute of Management Accountants.
3. Assume that Adam Williams sought the advice of his superior, the controller, and discovered that the controller was involved in the dumping of toxic wastes. Describe the steps that Williams should take to resolve this situation.

(CMA, adapted)

Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in “Managing for Organizational Integrity,” Harvard Business Review, March-April, 1994:

In the face of declining revenues, shrinking market share, and an increasingly competitive market… management attempted to spur performance of its auto centers.… The automotive service advisers were given product-specific sales quotas—sell so many springs, shock absorbers, alignments, or brake jobs per shift—and paid a commission based on sales.… [F]ailure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the “pressure, pressure, pressure” to bring in sales.

This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didn't really need.

Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services.

Required:

1. How would this behavior affect customers? How might customers attempt to protect themselves against this behavior?
2. How would this behavior probably affect profits and employment in the automotive service industry?

The Association of Medical Personnel (AMP) is a membership/educational organization that serves a wide range of individuals who work for medical institutions including hospitals, clinics, and medical practices. The membership is composed of doctors, nurses, medical assistants, and professional administrators. The purpose of the organization is to provide individuals in the medical field with a professional organization that offers educational and training opportunities through local chapters, a monthly magazine (AMP Review), continuing education programs, seminars, self-study courses, and research publications.

AMP is governed by a board of directors who are members elected to these positions by the membership. The chairperson of the board is the highest ranking volunteer member and presides over the board; the board establishes policy for the organization. The policies are administered and carried out by AMP's paid professional staff. The president's chief responsibility is to manage the operations of the professional staff. Like any organization, the professional staff of AMP is composed of line and staff positions. A partial organization chart of the AMP professional staff is shown in Exhibit A.

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