Reference no: EM131718588

Universal Industries is in desperate need of a large contract to boost its declining U.S. revenues. The company doesn’t have a lot of international exposure, despite its ambitious name, but its chief operating officer (COO) may be about to change that. By coincidence, at a recent class reunion, he ran into an old classmate who was a high-ranking federal official responsible for a lot of the bidding for large defense contracts. After several rounds of drinks, the classmate began talking about his latest projects.

Universal has done a lot of defense work as a subcontractor for the major players in the industry, and the COO was able to leverage that experience to use his insider information to get Universal added to the list for several requests for proposal (RFPs) on a large expansion of a Middle Eastern military base.

To strengthen its position in the bidding process, several key Universal operatives made unpublicized visits to the towns surrounding the base and, in return for gifts of cash and other favors to local businesspeople and politicians, managed to tie up the exclusive services of several local contractors, making it almost impossible for the other contenders to meet the requirements of the RFPs. The COO was equally generous in his gift to the daughter of his classmate in recognition of his help in getting the inside information.

Unfortunately, even though the new military contracts were going to provide more than enough money to boost Universal’s performance numbers, they weren’t going to go into effect until the following quarter. After a behind-closed-doors discussion, the senior management team decided that Universal would adjust some of its fourth-quarter expenses in order to hit the price target that the analysts were expecting. The team fully expected that the revenue from the military contracts would allow them to make up for the adjustments in the next financial year.

However, because Universal’s annual revenue exceeded $1.4 billion, the CEO and CFO were required to put their signatures on the financial reports confirming their authenticity.

After a couple of sleepless nights, and confident that the military contracts would help them fix all this in the end, they both signed.

Identify the ethical transgressions in this example.

Which piece of legislation would apply to each transgression?

What would be the penalties for each transgression?

If Universal could prove that it had a compliance program in place, how would that affect the penalties?