Jordan Jahr
ACCT 4305
4/3/2015
Case 2-6
Supreme Designs, Inc.
Ethical Issues
This case deals with the basic issue of honesty. Janet Hoffman has engaged in a dishonest act by fraudulently writing checks that are payable to herself. Because Janet has written these checks to herself and breaks the trust between herself and Mr. Hoffman. Kevin Greenberg becomes involved because he tries to help out Janet by reconciling the April bank statement to the general ledger, so Janet will not have as much work to do when she returns. Greenberg seems to know what the right thing to do is, but he may feel conflicted because he reports directly to Janet and Janet gave him strict instructions in her absence from the company, and Greenberg failed to comply with them. Greenberg’s loyalty should be with the owners above anybody else. Janet is not an owner. Janet’s father is a part owner of the business. Greenberg should take into account how Gary Hoffman might feel about knowing that his daughter has stolen from the company. Me. Hoffman has a right to know about the situation, as well as the other owners.The financial statements of Supreme Designs for the current year will be materially misstated if corrective action is not taken, assuming that Janet Hoffman has written the improper checks all year. The misappropriation of funds by Janet Hoffman looks to be illegal at first glance, but we cannot appropriately judge the situation until all information is laid out on the table. Nevertheless, the reliability of internal controls and integrity of management must be questioned because of this act. The reliability of controls is clearly inadequate because there is no separation of duties, because only one person, Janet Hoffman, performs both the disbursement function and the reconciliation of the bank statement with the general ledger cash account.
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?
In this situation Kevin had good intentions because in a small business such as Supreme, Inc. it is very easy to get bogged down with all of the work, especially when weeks at a time are taken off. In any other situation if Janet had not been stealing from the company, Janet would have been very grateful for Kevin reconciling the April bank statement, and if he made a mistake he could always go back and redact it. In businesses employees are your most important asset and most companies would love to have employees like Kevin. At the same time Kevin did not have the authority to open the bank statement and reconcile it to the general ledger, and violated Janet’s trust in him making his decision the wrong one. His results were very lucky. Here, the ends do not justify the means.

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.
Kevin is first faced with the fact that he cannot tell anyone without first admitting that he disobeyed his instructions. Stage 1: Kevin would not say anything because he knows he would be in trouble. Stage 2: Kevin would tell the partners in hopes of being rewarded. Stage 3: Kevin may not say anything so as to try and help out Janet and the possible negative effects for the company because of Janet’s fraud. Stage 4: Kevin knows Janet has violated GAAP and would let others know this has happened. Stage 5: Kevin weighs the pros and cons, takes into account the stakeholders, and he either goes to Janet for an explanation, and possibly takes the situation right to Mr. Hoffman, or takes it to all of the owners. Stage 6: Kevin goes to all the owners because each one has a right to know what has happened. 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?
Janet could possibly react in several different ways: 1) fire him so he cannot be a whistleblower without looking like an upset employee looking to seek revenge; 2) try to convince Kevin that the checks were legitimate; or 3) ask him not to report her, express that she is sorry, and promise to change the checks once she gets back.

b. Assume 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?
Gary may give Janet a second chance if he believes that her character may be fixed. Gary may pay back the money to the company himself so the partners do not find out. Gary owes an obligation to his partners but he also has loyalty to his daughter. Gary may see that helping his daughter out is the right thing to do, but eventually this is not helping out Janet because she is not learning the difference between right and wrong, and not helping her learn from her mistakes. The right thing to do is to remove Janet from the company even if it is hard for him to do.

c. Assume 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?
With Kevin being fired this limits his choices. If he tells this to people he may not be believed and this hurts his chances of getting hired. In a perfect world Kevin documented everything that has happened and everything he has done leading up to the situation and right after it. When Kevin is once again employed he should consider whether to report the situation to the other partners, to the police or to the press.