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Cases in Business Ethics
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