Chapter 4 covers internal controls and ethics. It is important for business students to understand the role of internal controls in the business environment, to develop ethical decision-making skills, and to distinguish between ethical and unethical behaviors. This assignment is designed to help build your understanding through focused critical thinking. You must complete this assignment without direct assistance from a third party. You may use your book and internet research as resources, but you must construct your answer individually with your own words and thoughts. Cite your source(s) by name and/or website link to information and use quotation marks appropriately. The authenticity of your submitted work will be validated through “Turn It In” during the grading process. You must upload your finished work via the appropriate Assignment Folder in D2L. I will not accept emailed submissions or files in any format other than Word.
If you would like, you can start by using ChatGPT as your search engine, but you cannot use it as your source. Instead, ask ChatGPT for its sources and verify that they support your conclusions. You will need to cite every one of those sources that you use. Do not copy and paste the source contents, a doing so will result in a grade of zero. You must use your own words in a way that shows you understood what you read.
Acts of plagiarism will result in a failing grade for the assignment and, possibly, other more serious consequences. I will be using Turn-it-In to evaluate originality. Any score greater than 25% may lead to a failing grade. Do not copy and paste any of these instructions into your submission.
Your use of clear writing and correct grammar and punctuation will determine part of your score. If any part of this is incomplete, unreadable or incomprehensible, that part will get a score of zero.
Writing Assignment Instructions:
Content, concept application, and writing quality will impact your grade. You are not required to follow any strict professional writing format, but you must use complete sentences, proper punctuation, and cite the work of others if you use it in your work.
Page 1 Please use 12-point font, single spacing.
Part A (approximately ½ page) – Internal Controls (5 points)
Define and describe “Internal Controls.” Tell why an effective internal control system is necessary and what it is expected to accomplish. Give examples of internal controls designed to protect –
a company’s cash,
its inventory, and
the integrity of its financial reports.
Explain what a “control environment” is and how a company’s managers can establish an effective control environment. Include your thoughts about the importance of every employee’s contribution to the control environment.
Part B (no more than 2 pages) – Ethics and Fraud (5 points)
Define and describe “Ethics.” Define “Fraud.” Describe the fraud triangle and tell how it helps us to understand human behavior. How does this understanding help us to design effective internal controls? Tell why you think high ethical standards are important in the business environment. Explain the difference between ethics and morality as defined in https://www.geeksforgeeks.org/ethics-vs-morality/.
Page 2 – Ethical Analysis (10 points)
Evaluate the scenario provided on the next page. Answer these questions based on your analysis:
Do you think Greg behaved in an ethical manner? What evidence in the scenario supports your opinion of him?
Relate Greg’s behavior to each aspect of the Triangle of Fraud?
How would complying with Greg’s demands pose a threat to the integrity of corporation’s financial reports?
What internal control(s) could reduce the opportunity for Greg to succeed in pressuring you to commit fraud?
What incentives might motivate the customer to accept early delivery? How might this still pose an ethical dilemma?
If the current sales goal is “achieved” fraudulently, what consequences do you think Greg and your team will experience next year? Think about what happens to next week’s work if you’re allowed an extension to complete this week’s work.
Think about how you would feel after your last encounter with Greg.
Whom might you approach to discuss this before taking further action?
Plot out a list of steps for resolving this dilemma.
Create a conclusion to the story: Write a paragraph describing what you would do and how an ethical control environment would be restored.
CASE SCENARIO: This is a fictitious scenario, but it is based on factual events that have occurred in actual businesses.
You are an accounting manager in the Southeastern Division of a large corporation. The upper management of your organization sets an aggressive sales goal for your division in the new year. Your division manager, Greg, will receive an end-of-the-year bonus only if the sales goal is achieved. He begins by meeting with the marketing and sales managers and launching an aggressive sales campaign. He believes the goal is overly ambitious, but he is optimistic about his chances of achievement.
As the year progresses, you work diligently to provide frequent, accurate updated sales projections. The latest projections indicate that this year’s sales have increased significantly over last year, but the goal assigned to your division may not be reached before December 31.
Greg is not happy with your report. He releases his frustration and starts yelling at you. “Your numbers cannot be right!” He demands that you go back to the spreadsheets and calculate again. “#@!*?!! I am working my @$$ off, here, and nobody in sales has had a day off in months. Why are you working against us? You had better start acting like a part of the team and do your part to help us meet this goal. And mark my word – I had better not miss out on my bonus because you don’t know how to report the numbers!”
Speechless, you leave Greg’s office and start rechecking the figures. You are convinced that your projection is accurate. It is November, and you begin to worry that you will lose your job if things don’t improve before the end of the year. In the days that follow, you do your best to avoid running into Greg because you do not want to deal with any more confrontations.
One Friday evening, you are at your desk poring over the numbers one more time before going home. The sales manager, Tina, stops by your office, closes the door, and sits in the chair across from your desk. Her face shows that she is as stressed as you are. She confides that she, too, is feeling the heat from Greg and that she fears losing her job if the sales goal is not met. “I have done everything humanly possible to encourage our customers to buy more product at premium prices. We all knew from the beginning that the sales goal was pretty high, and it is amazing that we got this close. Tell me exactly what it would take to get Greg off our backs and our heads off the chopping block.”
You and Tina start reviewing and discussing everything together. Tina has received a large order from a long-time customer, but the customer cannot accept delivery until the second week of January. You rework the numbers and tell Tina, “If only the customer could take delivery before January 1st, we could reach the goal – just barely.” But it is a very large order, and Tina says the customer is adamant that delivery must not be made early.
Tina must have shared your discussion with Greg because he comes to you on Monday afternoon to discuss that large order. “Hey! I heard you found the solution to meeting our sales goal! Good job!!”
“Well,” you explain, “I made the observation that IF our customer could take delivery of that large order before the end of the year, we could meet the sales goal. We are that close. But Tina says the customer cannot do it.” Greg is not giving up. “That’s just a matter of semantics,” he says. “We can date the invoice December 31 and include it in this year’s sales. Then, we can deliver the goods in January, when the customer is ready. The customer never said we couldn’t bill him early. Right? It’s only a few days and one order. No one will ever know the difference. If the customer says anything about the invoice date, we’ll say it was an error and make a correction, but that will be next year, anyway. Problem solved!!” Greg bounces out of your office with thoughts of how he will spend his bonus dancing in his head
