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Cases in Business Ethics

Preparing SCU students for the ethical challenges of a career in business and fostering a broad community of ethical support both on campus and in the working world. These cases were written by Santa Clara University seniors Alexis Babb, Saayeli Mukherji, Amanda Nelson, and Noah Rickling as part of their work as Hackworth Fellows in Business Ethics at the Markkula Center for Applied Ethics.

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  •  Fraudulent Reporting: A Case in Accounting Ethics

    After majoring in accounting at Santa Clara University, Scott was hired as an associate auditor for a Bay Area accounting firm. He is currently auditing a local company's financial statements, a project he's been working on for about two months. The senior associate responsible for tracking billable hours has been pressuring Scott and other associates to report fewer hours than they actually worked. The senior associate would appear more successful if his team reported fewer hours, and the firm would also be better positioned to win similar contracts in the future. Scott is salaried, so billable hours don't affect his compensation directly. However, he knows that underreporting billable hours is against company policy.

    In accounting firms, offering low billable hours is attractive to potential customers, as the bid with the lowest overall cost will get the business. At the start of any bid, the client agrees to pay a fee for the company's services, including all staff time. If the employees report fewer hours, the company looks more attractive and will more likely get the contract.

    Pressure to report fewer billable hours comes from the "utilization metric" used to determine how efficiently an employee is working. Employees who report fewer hours than their peers will be seen as more efficient, due to a higher utilization rate. Scott remembers a case where one of his colleagues was promoted, partially because of his extremely high utilization rate. He knows that if he were to clock all of his actual hours worked, he would be at a disadvantage for the year-end performance review.

    If Scott decides to clock all his billable hours per company policy, he risks losing the competitive edge with his colleagues, nearly all of which participate in under billing. Scott is uncomfortable with the practice, but fears his options are limited.

    What should Scott Do?

    Posted June 2013

  •  Bank Fraud: A Case In Accounting Ethics

    Joe Mann, a senior consultant, was working with a small company that created capital equipment for semiconductor manufacturers such as Intel. The company's products were quickly becoming obsolete, and the management had taken on a considerable amount of debt. As the semiconductor market stalled in 1985-1986, there was not a significant need for new production equipment, and the future looked grim for the company.

    Joe and his partner proposed a new add-on for existing systems, which they hoped could help rejuvenate sales. The consulting team acknowledged that the company had a cash flow problem, and agreed to take a minimal fee upfront for the design, and royalties from product sales thereafter. The consultants designed and tested the equipment themselves, and eventually the new product had all the makings of a smash hit for the struggling company.

    One day, Joe entered the company's warehouse to do final testing on his products, only to find that a series of partially assembled, untested systems were ready to be shipped out. When he investigated further, a worker told him: “We're only shipping it to the inventory facility so we can use it as collateral for an asset based loan. We'll ship the products back after we get the loan.”

    Joe was genuinely concerned that company's shipping practice was an instance of bank fraud. But at the same time, his future success was intertwined with the company with his future royalty earnings being dependent on the company succeeding.

    What should Joe do?

    Posted June 2013