Reference no: EM133343550
Case Study: The Winkler Dilemma
(Adapted from Nankervis. A.R., Compton. R.L., Baird. M., and Coffey. J. (2011). Human Resource Management: Strategy and Practice. South Melbourne. Cengage.
Sue Winkler, Human Resources Director stared out of her office window and contemplated her future. Her thoughts were on her position in the company and her need to support her family of three children. As a sole parent she feels her options are limited.
Her dilemma began just a few weeks ago. She had learned from Robert Drew, the internal auditor, that an employee had reported to him possible expense account abuses by one of the company's most senior managers. Robert said that this employee had accompanied Dan Murphy, a senior vice-president, on many business trips. The employee said Murphy had some curious habits: When getting out of a taxi, he would ask for extra blank receipts, and in restaurants, he would often do the same.
Robert had followed up this tip. He examined Murphy's travel file and found numerous irregularities: multiple receipts from the same taxi companies for the same days, extremely expensive meals, and duplicate meal receipts for the same days and other suspicious charges for several hundred dollars each billed to an unknown company. Robert has estimated he could safely record a minimum of $30,000 worth of fake charges over the last three years.
When Robert told Sue Winkler what he had found, she said: "The guy makes over half a million a year in salary and yet he evidently is hitting us for at least $10,000 a year in completely fake expenses." Winkler added, "And if we know he is defrauding the company for $10,000 a year, then what is he up to that we don't know about?"
The two executives decided they would completely record Murphy's abuses and notify the CEO. However, as internal auditor, Robert was concerned -and not without reason. "Look," he said to Winkler, "Murphy outranks me. He and the CEO are very close friends. The CEO personally invited Murphy to join the company. This will look like I am whistle blowing on a valuable company executive, and the CEO won't be happy with me." But Winkler explained to Robert that when it came to high-ranking executives, there was no such thing as an "immaterial" fraud. Winkler knew their duty: They had to report Murphy's conduct to the next highest level in the organization-in this case, the President and CEO and then disclose it to the Audit Committee.
The Bad News Bearers
The two executives met with the CEO, and Robert's intuition about his reaction was correct. After hearing the presentation, the CEO erupted: "Murphy makes millions for this company, and you people are in here claiming he is hitting us for pocket money. Don't you have anything better to do?" But, Winkler replied, "I really hate that this has happened," she said, "but my duty is very clear. Murphy is an executive in this organization, and management fraud can have very serious consequences. Managers must set a proper example. If Murphy can cheat on his expenses and get away with it then other people will try it too. If we know of this, others in the company are sure to know. And if you discipline one employee and not another, the company opens itself to risk and legal liability. Furthermore, a person in Murphy's position controls millions of dollars in company assets. If he is dishonest about his expenses, what else is he dishonest about?"
But the CEO wouldn't listen. "I'm telling you, "He said, shaking his finger in the air, "drop this now and leave him alone. I've known Murphy for over 10 years. I recommended hiring both of you. I can just as easily recommend that you be replaced." It was clear to Winkler the CEO was furious, so she felt it best to end the discussion for the time being.
By the next day, the CEO had relented. He called Winkler and said: "I have thought this over. Of course, you are doing the right thing. I'm sorry I acted the way I did; it's just that Murphy is such a valuable team member, and this thing is embarrassing for the company and me. I'll go ahead and talk to the Chair of the Audit Committee. You can come with me."
They informed the Audit Committee and the Board of Directors of Murphy's "petty" thefts. Most members were upset that they had to involve themselves in what they saw as such an insignificant matter. It finally was decided that three Audit Committee members would speak directly to Murphy.
Murphy's attitude was cavalier toward the Audit Committee. He pointed out the many hundreds of nights he had logged away from home on the company's behalf. He readily admitted submitting inflated and duplicate expense reports, but he said the reason was that he didn't keep track of all of the cash he spent on behalf of the company, and this was just a way of reimbursing himself. The Audit Committee backed down from any further confrontation with him.
Please answer the following questions in the text boxes provided below.
A Way Out
To settle the matter, the Audit Committee Chair presented a changing plan to the CEO and the board where the issue was highlighted, and several actions were pointed for long and short-term.
Case questions
What is the key issue or problem and what are the sub-issues in this case? Justify your answer with evidence from the case and provide a short justification for each sub-issue mentioned in your answer.