INTRODUCTION
Matador Materials, a public company, became an industry
leader in the United States supplying construction and
heavy building materials and through numerous acquisitions.
Matador followed a decentralized operating philosophy,
which allowed facilities to operate as autonomous profit
centers. Facility managers reported directly to the vice
president of operations at the main corporate office and
were given broad decision-making authority over facility
expenditures with minimal, if any, oversight. If the facility
was generating a profit, little attention was paid to the
facility manager’s decisions. Matador followed a “don’t ask
don’t tell” philosophy, which allowed facility managers to
do whatever necessary to achieve the company’s financial
objectives. Corporate executives realized their philosophy
encouraged questionable business practices bordering on
unethical—or worse, illegal—but rationalized their actions
as being consistent with industry practices. Consistent with
the company’s code of ethics, a confidential ethics hotline
was established for employees to report suspected unethical
or illegal behavior. Within the company, it was common
knowledge that calling the ethics hotline would not end well
for the employee.
THE NEWBIE
After completing her accounting degree and passing the
CMA® (Certified Management Accountant) examination,
Teresa was excited about her first accounting job as the
accounting manager at Matador Materials, the largest
employer in her rural hometown of Hope, GA. Since
graduating from high school, Teresa stayed in Hope to
raise her now 10-year-old daughter. Teresa was the third
generation from her family to work for Matador Materials
but the first to work in the office. Her grandfather, father,
and brother had loaded and unloaded building materials. On
her first day, Teresa mused, “This is best accounting job in
Hope. I am so blessed to work here and raise my daughter
near family and friends.”
THE DISCOVERY
In the past, the Hope facility consistently outperformed
other facilities, with corporate executives hailing it and its
facility manager Sam as models for others to emulate. All that
changed a year ago, though, when a competitor opened a
new facility in Hope. This resulted in dramatic decreases in
sales and increases in costs, with the Hope facility reporting
a loss for the first time ever. Executives who once praised
the Hope facility now requested a complete review of the
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ISSN 1940-204X
Higher Degrees of an Ethical Dilemma
Robert Rankin
Department of Accounting
Texas A&M Commerce
© 2 0 1 8 I M A
Trish Driskill
Department of Accounting and Business Law
University of the Incarnate Word
facility’s financial results. They charged Pat, the former Hope
accounting manager who was recently promoted to divisional
controller, with the task. As expected, Pat discovered a
significant decrease in sales driven by lower selling prices and
increased operational costs driven by inefficient operations.
Pat was puzzled by the extraordinary increase in the facility’s
administration expenses. Pat knew Sam approved those
expenditures with the source documents retained locally at
Hope, so he asked Teresa to investigate.
THE INVESTIGATION
Teresa realized this investigation could jumpstart her career.
While Teresa reported directly to Pat at the corporate office,
she felt a deep sense of obligation to Sam at Hope. She
reasoned, “If I do a good job at the Hope facility, when
Pat retires in the next five years, I could become the next
divisional controller.”
Analyzing the details of the administration expenses,
Teresa uncovered significant increases in overtime and
tuition reimbursement costs in the general administration
and human resources departments. Confident she had the
necessary skills to uncover the root cause of the increase, her
first stop was the payroll department.
“Good morning, Mary,” Teresa said to her payroll
clerk. “I need your help. Would you please pull last year’s
timecards for Sam’s administrative Helpant, Tia, and the
switchboard operator, Tamara, and all of the human resource
clerks?”
“No problem, Teresa. It might take me a little bit. Can I
get them to you after lunch?”
“Sure. Mary, is there anything unique about these
timecards?”
“Funny you should ask. These are the only departments
in the entire facility that submit their timecards in Excel.
All the other departments use the company’s time system,”
Mary said.
“I suspect that was something Pat set up years ago for
convenience. I will get him to clarify. Please make this a
priority. This is my first major project for Pat and Sam,”
Teresa said.
Mary said, “Consider it done. We are excited to have you
as part of our team.”
From payroll, Teresa next visited with the accounts
payable clerk to review the tuition reimbursement source
documents. The company recently began offering tuition
reimbursement (company-paid tuition) to encourage
employees to further their education.
“Annette, I need your help. I am reviewing tuition
reimbursement expenses for a project for Pat and Sam.
Would you please pull the source documents supporting
those expenditures?” Teresa asked.
“Sure, that is easy. Normally I file all of those together,
so when the continuous improvement manager from
corporate audits our files, I do not have to pull them for each
university. Here you go.”
“Thanks. One more question. Which departments take
full advantage of the tuition reimbursement?”
“If memory serves, the general administration and human
resource departments have over the last couple of years, but
I am not 100% certain.”
THE REVIEW
Teresa decided to review the tuition reimbursement source
documents first. She discovered Annette was correct; the
general administration and human resources departments
used the benefit extensively. In the last year, Tia and Tamara
were reimbursed $20,000 each. Angel, the human resources
manager, and Marty, the human resources clerk, received
payments of $35,000 combined. The invoices appeared to be
from bona fide universities all approved by Sam. Although
the dollars spent were abnormally high, the supporting
source documents justified the expenses.
Turning her attention to the timecards, Teresa was not
surprised to find that Tia, Tamara, and Marty were the only
administrative employees who submitted their timecards in
Excel. As with the tuition reimbursement source documents,
everything was in order and approved by Sam or Angel.
There was, however, something out of the ordinary about
their time: all three reported 70 hours worked per week for
more than a year. Teresa knew something was not right and
decided to discuss her findings with Pat.
DISCUSSION WITH THE DIVISIONAL CONTROLLER
“Pat, sorry for calling so late. I just completed my analysis of
the administration expenses. If you have a moment, I would
like to discuss my findings,” Teresa said hesitantly.
“What did you find?” Pat asked.
“The two drivers for the increased administration
expenses are overtime and tuition reimbursement in the
facility administration and human resources departments.
In previous years, neither department had any significant
overtime and no tuition reimbursement costs. For
the current year, overtime pay is $50,000 with tuition
reimbursement of $75,000.”
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Pat asked a little puzzled, “Did you review the source
documents?”
“Absolutely. Sam approved all of the expenses. What I
found a bit curious was that Tia, Tamara, and Marty used
Excel to submit their time, which averaged 70 hours per
week for more than a year. Coincidently, besides Angel, they
were the only employees to request tuition reimbursement.”
“Great. Thanks for your thorough analysis,” Pat said.
“It seems the overtime and tuition reimbursement costs
are related. When you were at Hope, did you or Sam make
any special accommodations for employees taking classes?
I am curious if you approved overtime pay for employees
taking online classes as long as they did their course work at
the office,” Teresa suggested hopefully.
“Teresa, I did not make any such arrangement and am
certain neither did Sam. I am confident Sam is in complete
control of all of the expenditures at Hope. I hope you are not
suggesting that Sam gave preferential treatment to the facility
administration and human resource departments or, worse,
committed some type of fraud. During my 10 years at the
Hope facility, Sam would not tolerate anyone bending much
less breaking the rules,” Pat commented, clearly agitated.
“Your line of inquiry is unfounded. If you persist in pressing
the issue, your tenure with our company may be short.”
DISCUSSION WITH THE FACILITY MANAGER
Teresa remained unsettled by Pat’s warning. Even though
she reported directly to Pat, her loyalties were to her
profession and to Sam and the management team at the
Hope facility. She felt compelled to resolve the issue. Even
though Sam and Pat shared a close working relationship
and friendship for several years, Teresa could not help
but wonder if Pat was protecting his former colleague or
someone else at Hope. She had to know. Ignoring her boss’
warning, Teresa arranged a meeting with Sam.
“Sam, it surely has been a long couple of months.
No matter what we do, it seems we cannot return to
profitability,” Teresa said.
“It surely has,” Sam agreed. “We are most definitely
feeling the pressure from our competition. Some of our most
experienced workers resigned in favor of the competition,
which has adversely affected our financial results. But that is
old news to you. You asked for this meeting. What is up?”
“I am not certain if you are aware that Pat asked me to
analyze our financial results for last year,” Teresa explained.
“I found the obvious decreases in sales and increases in
operating costs. One thing I discovered that I did not expect
was a doubling of our administration costs year-over-year.”
“That’s incredible. I suspect the accounting department
is the culprit. With Pat leaving, I would expect overtime
costs increased during the transition,” Sam said.
“Surprisingly, the accounting department expenses are flat.
The cost increases are actually in the facility administration
and human resources departments,” Teresa interjected.
A little annoyed, Sam exclaimed, “That cannot be right.
We have not hired anybody new in more than a year. In fact,
we have been working to reduce our costs.”
“That is exactly what I thought. When I dug deeper, I
found significant increases in tuition reimbursement and
overtime costs. Tuition reimbursement costs are up because
Tia and Tamara in your department, as well as Marty and
Angel in human resources, started taking classes. For the
past year, Tia, Tamara, and Marty worked an average of 70
hours per week. Here are the source documents for tuition
reimbursement and their timecards all with your signature,”
Teresa indicated as she handed the documentation to Sam.
“I knew they went back to school, but I was not
aware of the overtime hours. I did approve their tuition
reimbursement and time, so they must be correct,” a now
agitated Sam said.
Teresa pressed, “Sam, are you sure? Are these really your
signatures?”
“Yes. They are my signatures,” an almost furious Sam
countered. “I approve ALL expenditures at this facility and
do an excellent job of it. I do not appreciate what you are
implying. If I were you, I would be careful about making
any accusations. I have known these people for more than
10 years. We go to church together, and our kids play on the
same soccer team. Teresa, you are out of line here. When
Pat hired you over my objection, there were several more
qualified candidates. You have only been at our facility for
three months. If you are not careful, you might not make your
fourth. I am in charge here. This conversation is over. Leave
your source documents with me, and I will get the issue
resolved. You are not to mention this again. Understood?”
Barely audible, Teresa answered, “Understood.”
CASE QUESTIONS
1. As a CMA, Teresa is governed by the IMA® (Institute
of Management Accountants) Statement of Ethical
Professional Practice. What are Teresa’s ethical
responsibilities under IMA’s standards?
2. Describe how Teresa can follow the steps of ethical
conduct resolution detailed in the IMA Statement.
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3. Pat is also a CMA. Evaluate which of IMA’s standards
Pat may have violated. What are the repercussions of
violating IMA’s ethical standards?
4. Who are the stakeholders in the case?
5. Evaluate Teresa’s potential responses to this ethical
dilemma and the advantages and disadvantages of each.
6. If Teresa elects to escalate the situation, what safeguards
are in place to protect her from repercussions in the
workplace?
7. What did you learn from this case?
8. What factors would Teresa consider when deciding to
become a whistleblower or investigate further?
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ABOUT IMA® (INSTITUTE OF MANAGEMENT ACCOUNTANTS) IMA®, the association of accountants and financial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA® (Certified Management Accountant) program, continuing education, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 100,000 members in 140 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacific, Europe, and Middle East/India. For more information about IMA, please visit www.imanet.org.
