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Family Games, Inc. Case 4-4 By John Duarte and Justin Bost Overview Introduction Ethical DecisionMaking Model • • • • • • Framing the issue The facts Stakeholders Core values Operational issues Accounting issues Ethical DecisionMaking Model (cont.) • • • • Possible Alternatives Evaluate Alternatives Ethical analysis Decision Questions Family Games, Inc. Helen Strom, controller – Carl Land, CFO – Forced into making a decision Threatens Helen with taking away reimbursements for child care CEO aka “The Big Boss” – Using company funds in Vegas Step 1: Framing the Issue Should Helen perform an unethical act to maintain reimbursements for much needed child care services? Step 2: The Facts Usual annual sales of about $50 million Net loss the last two years due to cost-cutting measures CEO has a gambling problem CEO has borrowed money from company for personal reasons (sizeable “I Owe U”) Step 2: The Facts (cont.) Transaction began 12/30/07 and is expected to be finished 1/2/08 CFO tells Strom to record $12 million revenue in 2007 Strom refuses to “cook the books” CFO leaves Strom with ultimatum approved by CEO Step 3: Stakeholders CEO – CFO – Following orders from superior Parties affiliated with the company – Needs performance bonus Employees, shareholders, creditors, etc. need reliable financial information Helen’s son – Needs full time care (autism) Step 4: Core Values Trustworthiness – Honesty • – Knowingly recording a transaction wrong is not honest Integrity • Likelihood of not getting caught Step 4: Core Values (cont.) Trustworthiness (cont.) – Reliability • • – Financial information Operations of company Loyalty • • • Helen’s son The company Herself Step 4: Core Values (cont.) Respect – Responsibility – – Helen isn’t receiving any Helen’s son User’s of financial information Fairness – A “no win” situation Step 4: Core Values (cont.) Caring – CEO and CFO only caring for themselves Citizenship – – Public trust in financial statements Code of Ethics Step 5: Operational Issues Inappropriate use of company resources – – Internal controls Collusion Abuse of upper level position – Coercion • Possibly throughout entire company Board of directors – Lack of governance Step 6: Accounting Issues Improper revenue recognition – Could affect several accounts • • Overstate revenue and AR Understate inventory Improper matching Manipulating a sales invoice
