Issues 1.- What different Course of action David Sokol should have taken? 2.- What measures can and should be taken to make it easier for corporate employees to “blow the whistle” on a fraudulent scheme they uncover within their firm? 3.- Should business, accounting firms, and other organizations explicitly reward ethical behavior by their employees and executives?
4.- What measures accounting firms can take to reduce the risk that personal relationships between client personnel and members of an audit engagement team will adversely affect the quality of the audit?
5.- Was the 1988 “retention engagement” that Ernst & Young made with JWP appropriate?
6.- Why Ernst & Young agreed to pay a large settlement to JWP’s stockholders but chose to contest the lawsuit filed against it by the insurance companies?
Facts
In 1886, the Jamaican Water Supply Company began operations as a small business delivering water to a few neighborhoods in the Queens borough of New York. In the mid-1960’s, Martin Dwyer took control of JWC and realized that the heavily regulated water utility industry limited his company’s profits potential. Therefore, He decided to branch out into other businesses and began offering various contracting and construction services to local municipalities like installing telephone lines, working on street lighting projects and developing traffic control systems. The company continued to expand into other lines of businesses through acquisitions. To finance these companies Dwyer borrowed heavily from banks and other lenders. The high interest rates, the nationwide recession, and a series of poor decisions by Dwyer and his management team had driven the company to the verge of bankruptcy around the mid-1970.

To salvage the company, Dwyer stepped down as its top executive and placed his 30 year old son Andrew in charge in 1978.