Post replies on the posts of other classmates that add something to the discussion utilizing concepts from the case, course, and ethical principles. You should not merely compliment class

Statement1:

As I reviewed the case “When Change Isn’t So Good: A Story of New Management and Misleading Statements”, I experienced a myriad of emotions. In my most recent position I was not considered a member of management, but I was in a position in which I worked closely with upper management and was involved in key decision making for the organization. I sympathize with the role that Liz was put in, having dedicated her career to BFR, Inc. and had given what she felt was her most sincere efforts; to only be confronted with blatant unethical leadership and ultimately a decision that would affect her role with the company. After reading the IMA Statement of Ethical Professional Practice it is difficult to determine whether any of the principles are directly violated. In my opinion, the principles are vague and left to interpretation, in other words subjective. Unlike financial accounting where external reports are created, audited and standardized by government authorities, management accounting is otherwise unregulated. The only principle I concluded was blatantly violated is the one referring to Competence where it states, “Perform professional duties in accordance with relevant laws, regulations, and technical standards”, (IMA Statement of Ethical Professional Practice, pg. 2). This only because the management, in changing the accounting numbers that were provided by Liz, are committing fraud. They’re not only altering the work of the original owner, but also presenting to the board in a misleading way thus violating ethical principles.

Because of the misrepresentation of expenses to income being presented to the board members they were not aware of the actual amount of money utilized to purchase facility upgrades and the new marketing firm mentioned. This will impact the way other managing decisions are made. For example if utilizing the numbers that were recreated by Sam and Angela, the board members will believe that the company is in better standing than it actually is. The Balanced Scorecard will be altered, if the organization decided to evaluate employees off of the numbers given, versus the actual reporting done by Liz. This is detrimental to the morale of BFR, Inc. and could ultimately cause the company to go into bankruptcy, if the CEO continues to spend at a rate that does not counter expenses.

Liz has done the right thing by contacting the IMA Ethical Helpline. She should also express grievances to board member Jim when given the opportunity; that way Liz is relieved of any responsibility being that she has communicated her concerns to upper management. Finally, if there is no reprimanding done to Sam’s team for the fraudulent reports, Liz may decide to leave the company, herself being in good standing. Because she is a management accountant, in order to uphold the integrity of her own career, it is only right that she departs. If she would choose not to, her character would be in question and career on the line, even beyond her work with BFR, Inc.

Statement2:

 Which of the IMA’s overarching ethical principles are potentially compromised by Liz’s position?

Liz is in a tricky situation within her company. It seems to me that while she definitely wants to continue her work, she is hindered by the ulterior motives of the CFO and CEO. While reading through the IMA ethical principles, it is obvious to me that Liz is breaching 1.3, provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognize and help manage risk. Liz has been in compliance, though not without giving her point of view, with some unsavory behaviors on the CFO’s part. Liz also has compromised herself through rule 4.2, which discusses providing relevant information that could influence decision making via intended user’s understanding of reports, etc. Since the CFO is fabricating numbers and altering documents while placing a clause in the preparations (prepared by management, which Liz is a part of), Liz is culpable.

 Is management perpetrating fraud? Is what they are doing illegal? Unethical? Explain.

I think that these acts by the CFO and CEO are fraud. Similar events are occurring with well-known folks in the news right now with multiple investigations ongoing. One part that makes me think this is certainly fraud is the office refreshes and new buildings. To obtain those things, the company would need to secure funding, and that means they’d need to disclose documents and reports to an outside lender. The inflated projections could sway the decision makers for the lenders who might decide to give the funding to the company based on these reports. While it might not be illegal outright, since there are no external people who are reviewing these reports (except in the case noted above where the company needs to secure funds), it places the company in an awkward position of having to explain why there is not enough revenue to cover the operating costs at the end of the fiscal year.

 How does the misleading information impact decision-making? What damages could potentially be caused by the misleading information?

As I noted above, the information could negatively impact decision making because the board of directors may give the “OK” for rather hefty costing programs or projects. An example may be that the board of directors deciding to outsource a marketing team to work with the company when the funds are simply not there, as the reports have been inflated. The consequences of these faulty reports and questionable actions would be terrible for the long-term health of the company. Over time, there will not be enough money to cover the costs of operating the company and it may fail.

 If you were a board member and found out about the changes and discrepancies in the material presented, how would you feel?

If I were a board member, I would want to hold a special meeting with the other members of the board to vote on restructuring the company and I might hire another internal auditor to double-check all the reporting coming through. I would definitely want to get some answers from the CFO and CEO, including their sources of information to account for the inflation in projected revenues and the increases in unrestricted cash, etc.

 Identify the stakeholders in this case. Then discuss how Liz’s decision may impact the stakeholders.

The stakeholders in this case would be the board of directors, as they are in place to direct the company, vote on programming, projects, etc, as well as the employees in the company, because these reports ultimately have an effect on salaries/wages and the company’s health, and the executives, as they have to answer for their decisions and they also have to engage with the board of directors and make important decisions with regards to the company’s functions and futures.

 What do you recommend Liz do? Be sure to defend your answer.

I think that Liz should talk to Jim but she should explain in depth how she has tried to have conversations with Alexis about the reports. She should comment to him about her being left out of the meetings and being in the dark about what the CFO and CEO are planning and including in their budgeting reports. If Liz is upfront and explains the situation and her part in it, she could create a long term positive reaction. Liz might want to give her old executive director, James Sims, to get advice from him before her meeting. Since Liz has been in the company for so long, she may have a good relationship with him and the board of directors, which helps her. If Liz does not voice her opinions, she in complicit with what is going on because she is aware of it being incorrect and not reporting this to the board of directors. Her being a bystander violates the IMA principles and Liz could lose her job anyway, because the company may end up failing. It is clear that the CEO does not have the same emotional ties to the company that Liz does, and if she truly wants to be on the right side of the dilemma, she should plan to discuss these matters with Jim, even if she feels like she is going behind the CFO/CEO’s backs.

Statement3:

Liz, after reviewing the IMA Statement of Ethical Professional Practice, the majority of the overarching principles are potentially compromised by your position: Competence, Integrity and Credibility. As a member of the IMA, it is your responsibility to uphold the standard of Competence, which states that members are responsible for providing decision support and recommendations that are accurate. Since you became aware the financial projections were intentionally being fabricated by senior management; I can understand your hesitancy in coming forward out of fear of retaliation. However, it is your moral duty to report these unethical practices as it has the potential to jeopardize

your professional licensure, IMA Membership as well as more serious legal consequences. Management’s attempt at pacifying you by making an ambiguous statement at the end of the report that, “the numbers were prepared by management,” will not absolve you of your ethical responsibility. Liz, you are also considered management, so that statement would not exonerate you as it does not clearly state you are not responsible for the inaccurate projections. Thusly, this could have negative implications on your career. Additionally, Integrity is another principle compromised by your position. You are responsible to abstain from engaging in or supporting any activity that might discredit the profession. Although you are an unwilling participant, your failure to act or speak out incriminates you along with the other senior executives. Lastly, you would not be upholding the IMA standard of Credibility because the projections were intentionally falsified to deceive the Board of Supervisors. You are responsible for providing all relevant information that could reasonably be expected to influence an intended user’s understanding or report any deficiencies in information or internal controls in accordance with organizational policy or law.

Fraud is essentially deception intended for personal gain. Therefore, it appears management is perpetuating fraud. The CEO is very intentional with his actions to misrepresent the organization’s revenue as he refused to share his rationale behind the inaccurate projections. This is a good indicator there is likely personal gain in falsifying this important information, which is unethical. If this same falsified information is reported to the IRS, then there will be legal implications for all involved and the company could lose its 501(c)(3) status.

The Board of Supervisors should be well-informed as its purpose is to operate in the best interest of the organization. The inaccurate projections presented by management to the Board of Supervisors, interferes with the Board’s ability to oversee the organization’s operations and make sound decisions on expenditures. As a board member, I would feel betrayed and lose all confidence and trust in the senior management’s ability to effectively run the company. Irreparable damage could be done to the company if decisions on future expenditures are made with misleading or falsified information. The company’s future is dependent upon projections made by management; and could prove detrimental to the company as you projected expenses to exceed revenues. As a result of this deliberate mismanagement and falsification, BFR will not be able to sustain itself.

Liz, the decision to come forward is a difficult one. However, if you remain silent, it will have far-reaching implications for you and your future. It will also have very serious consequences for all the stakeholders such as: the Board of Supervisors, the employees, the company donors and the consumers seeking addiction support certification. Although the Board of Supervisors were deliberately misled by management, in the public’s eye – the Board will share in the blame for the company’s downfall as they are responsible for providing oversight. Employees will lose their livelihood, and donors and the consumers will take a financial loss as well.

I can imagine your frustration and fear as your professional career, credibility and integrity are at stake. I would strongly advise you to seek legal advice to determine the

legal and most ethical way to handle this and to protect yourself. The Whistleblower Protection Act can provide you with protection from retaliation for disclosing this information. It can provide you with protection from economic loss, emotional distress and safeguard your reputation. No one wins in this situation; it is better to do something now before it is too late.