Reference no: EM131379613

Cognitive Processes and Ethical Decision Making in Accounting Supreme Designs, Inc., is a small manufacturing company located in Detroit, Michigan. The company has three stockholders-Gary Hoffman, Ed Webber, and John Sullivan. Hoffman manages the business, including the responsibility for the financial statements. Webber and Sullivan do most of the sales work, and they cultivate potential customers for Supreme Designs.

Hoffman recently hired his daughter, Janet, to manage the office. Janet has successfully managed a small clothing boutique in downtown Detroit for the past eight years. She sold the shop to a regional department store that wanted to expand its operations. Gary Hoffman hopes that his daughter will take over as an owner in a few years when he reaches retirement age. Webber and Sullivan are significantly younger than Gary Hoffman. Janet is given complete control over the payroll, and she approves disbursements, signs checks, and reconciles the general ledger cash account to the bank statement balance.

Previously, the bookkeeper was the only employee with such authority. However, the bookkeeper recently left the company, and Hoffman needed someone whom he could trust to be in charge of these sensitive operations. He did ask his daughter to hire someone as soon as possible to help with these and other accounting functions. Janet hired Kevin Greenberg shortly thereafter, based on a friend's recommendation. Greenberg is a relatively inexperienced accountant, but he was willing to work for less than what the company had paid the former bookkeeper. On April 29, 2013, about one year after hiring Greenberg, Janet discovers that she needs surgery.

Even though the procedure is fairly common and the risks are minimal, she plans on spending five weeks in recovery because of related medical problems that could flare up if she returns to work too soon. She tells Greenberg to approve vouchers for payment and present them to her father during this time, and her father will write the checks during her absence. Janet had previously discussed this plan with her father, and they both agreed that Greenberg was ready to assume the additional responsibilities. They did not, however, discuss the matter with either Webber or Sullivan. The bank statement for April arrives on May 3, 2013. Janet did not tell Greenberg to reconcile the bank statements. In fact, she specifically told him to just put those aside until her return. However, Greenberg decides to reconcile the April bank statement as a favor to Janet and to lighten her workload after she returns.

Although everything appears to be in order, Greenberg is not sure what to make of his finding that Janet approved and signed five checks payable to herself, each for the same amount, during April 2013. Each check appears in correct numerical sequence, 1 check of every 10 checks written during the month. Greenberg was surprised because if these were payroll checks (as he had suspected because they were for the same amount), it was highly unusual. This is because the payroll is processed once a month for all employees of Supreme Designs.

In fact, he found only one canceled check for each of the other employees, including himself. Curiosity gets the better of Greenberg, and he decides to trace the checks paid to Janet to the cash disbursements journal. He looked for supporting documentation but couldn't find any. He noticed that four of the five checks were coded to different accounts: one each to supplies, travel and entertainment, and books and magazines, and two to miscellaneous expenses. After considering what his findings might mean and whether he should contact Janet, Greenberg decided to expand his search. He reviewed the bank statements for January through March 2013.

In all, there were 15 additional checks made payable to Janet, each for the same amount as the 5 in April. These 20 checks totaled $30,000. Greenberg still thought it was possible that these amounts represented Janet's salary because he knows that her annual salary is $50,000. Perhaps she took out a little more this year. Greenberg doesn't know what to do. He could contact Janet, but he knows that she would be unhappy that he opened the bank statements and went so far as to reconcile cash for April even though she specifically told him not to. Perhaps he should contact the three stockholders. Then again, it may be best to keep quiet about the entire matter

Questions
1. Do you think Greenberg did the "right" thing by opening the April bank statement and reconciling it to the general ledger? Why or why not? What about the previous bank statements?

2. Explain what Greenberg should do if he reasons at each of the six stages of Kohlberg's model of moral development. Be sure to consider stakeholder effects in your answer.

3. Evaluate what steps should be taken in each of the following independent situations:

a. If you were Janet and Greenberg dropped by the hospital to tell you about his discovery, how would you react?

b. Assume that Greenberg contacts Janet's father because he did not want to upset her after the surgery. Hoffman talks to his daughter, who informs him that she had a shortage in her personal funds and planned to repay the $30,000 after she returns. What would you do if you were Gary Hoffman? Why?

c. Assume that Hoffman does nothing because of his daughter's explanation. Janet returns to work and fires Kevin Greenberg. What would you do if you were Greenberg? Why? How do you think his action (or inaction) might affect his opportunity for other jobs? Should that matter in terms of what he decides to do?