Please read the case paragraphs and power point slides, answer the following questions:
case 2-1. Explain what Barbara should do if she reasons at each of the stages of Kohlberg’s model. (no less than 150 words)
case 3-2. Assume you have decided to report the fraud. What would your first step be? That is, to whom would you report the fraud and why? (no less than 150 words)Case 2-1 A Team Player? (a GVV case)
Barbara is working on the audit of a client with a group of five other staff-level employees. After the inventory audit was completed, Diane, a member of the group, asks to meet with the other employees. She points out that she now realizes a deficiency exists in the client’s inventory system whereby a small number of items were double counted. The amounts are relatively minor and the rest of the inventory observation went smoothly. Barbara suggests to Diane that they bring the matter to Jessica, the senior in charge of the engagement. Diane does not want to do it because she is the one responsible for the oversight. Three of the other four staff members agree with Diane. Haley is the only one, along with Barbara, who wants to inform Jessica.
After an extended discussion of the matter, the group votes and decides not to inform Jessica. Still, Barbara does not feel right about it. She wonders: What if Jessica finds out another way? What if the deficiency is more serious than Diane has said? What if it portends other problems with the client? She decides to raise all these issues but is rebuked by the others who remind her that the team is already behind on its work and any additional audit procedures would increase the time spent on the audit and make them all look incompetent. They remind Barbara that Jessica is a stickler for keeping to the budget and any overages cannot be billed to the client.
Explain what Barbara should do if she reasons at each of the stages of Kohlberg’s model.
(no less than 150 words)
Case 3-2 Rite Aid Inventory Surplus Fraud
Occupational fraud comes in many shapes and sizes. The $12.9 million dollar fraud and kickback scheme at Rite Aid is one such case.
In February 2015, Jay Findling, a New Jersey businessman, pleaded guilty to charges of conspiracy to commit wire fraud.
Former vice president, Timothy Foster, pleaded guilty to making false statements to authorities. On November 16, 2016, Foster was sentenced to five years in prison and Findling, four years. Findling and Foster were ordered to jointly pay $8,034,183 in restitution. Findling also forfeited and turned over an additional $11.6 million to the government at the time he entered his guilty plea. In sentencing Foster, U.S. Middle District Judge John E. Jones III expressed his astonishment that in one instance at Rite-Aid headquarters, Foster took a multimillion dollar cash pay-off from Findling, then stuffed the money into a bag and flew home on Rite Aid’s corporate jet.
The charges relate to a nine-year conspiracy to defraud Rite Aid by lying to the company about the sale of surplus inventory to a company owned by Findling when it was sold to third parties for greater amounts. Findling would then kick back a portion of his profits to Foster. Foster’s lawyer told Justice Jones that, even though they conned the company, the efforts of Foster and Finding still earned Rite Aid over $ 100 million “instead of having wCognitive Processes and Ethical Decision Making in Accounting
Chapter 02
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Because learning changes everything.®
Learning Objectives
L O 2-1: Analyze the thought processes involved in, and the impact cognitive biases have on, making decisions and taking ethical action.
L O 2-2: Describe Kohlberg’s stages of moral development.
L O 2-3: Explain Rest’s Model and how its components influence ethical decision making.
L O 2-4: Describe the link between organizational culture, ethical climate, ethical leadership, and ethical decision making.
L O 2-5: Distinguish between Equity, Diversity, and Inclusion.
L O 2-6: Apply both the Integrated Ethical Decision-Making Model and the Giving Voices to Values Methodology to a case study.
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Chapter Organization
Access the text alternative for slide images.
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Learning Objective 1
Analyze the thought processes involved in, and the impact cognitive biases have on, making decisions and taking ethical action.
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Behavioral Ethics
Behavioral ethics emphasizes how individuals actually make decisions and the impact our cognitive biases have on those decisions.
Kahneman’s suggests two distinct modes of decision making:
System 1 thinking is an intuitive system of processing information.
Fast, automatic, effortless, and emotional.
System 2 thinking is a reasoned decision process.
Slower, conscious, effortful, and explicitly.
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Cognitive Biases
Understanding unconscious biases that people may have is an important first step to preventing unethical behavior.
Where these bias’s come from.
Types of Biases.
Incrementalism.
Situational Factors.
Cognitive Dissonance.
Bystander Effect.
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Theories About the World
Deterministic Bias.
Hindsight Bias.
Attribution Bias.
Framing Bias.
All of the above biases contribute to underestimating the risk associated with the decisions being made.
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Theories About Other People
Ethnocentrism
Thinking of ourselves and those most similar to us as better than others.
US versus Them Mentality.
Our nation is better than any other nation.
Our Baseball team is better than any other team.
People who think and act like me are better than those that don’t.
Stereotypes
Derived from ethnocentrism.
People often attribute negative attributes to those not similar to themselves.
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Theories About Ourselves
Overconfidence/Superiority Bias.
Oversimplification Bias.
Loss Aversion Bias.
Authoritative Bias.
Conformity Bias/ Group Think.
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Incrementalism
The Slippery Slope.
Once you agree to do something unethical and or illegal once it is more likely you will do it again.
Your past actions can be used against you in the future.
Organizational Ethics and Corporate Governance
Chapter 03
© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.
Because learning changes everything.®
Learning Objectives
L O 3-1: Describe the causes of fraud, detection methods, and preventative controls.
L O 3-2: Describe the signs that an organization has collapsed ethically.
L O 3-3: Discuss compliance, integrity, and employee views about ethics in the workplace.
L O 3-4: Describe the scope and role of corporate governance systems in the ethical decision-making process.
L O 3-5: Explain the models of corporate governance and ethical expectations of organizations.
L O 3-6: Explain how the provisions of the Sarbanes-Oxley Act relate to corporate governance, including relationships with key parties.
L O 3-7: Discuss whistleblowing procedures under Dodd-Frank and concerns about the program.
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Fraud in Organizations
Fraud can be defined as a deliberate misrepresentation to gain an advantage over another party. Fraud comes in many different forms, including fraud in financial statements, the misappropriation of assets (theft) and subsequent cover-up, and disclosure fraud.
Fraud is not the same as an error, which can occur innocently. Fraud is a purposeful act to mislead others.
A common element of fraud is it leads to (material) misrepresentation of the financial statements.
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How Fraud is Detected
According to the ACFE study of Occupational Fraud, the most common method of detection was a “tip,” (43%).
In organizations with hotlines, 49% come from a tip but declines to 31% percent in organizations with no hotline.
Internal audit was next with 15% followed by management review (12%).
The results indicate the need for strong internal controls and an effective audit committee.
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Fraud Detection Methods
Detection Method
Percentage Reported
Median Loss
Tip
43%
$145,000
Internal Audit
15%
$100,000
Management Review
12%
$100,000
Other
6%
N/A
By Accident
5%
$200,000
Account Reconciliation
4%
$81,000
Document Examination
3%
$101,000
External Audit
4%
$150,000
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Red Flag Warnings of Fraud
Individual behavioral traits/warning signs include living beyond one’s means (42%) and financial difficulties (26%).
The question is how can the anti-fraud controls identify these behavioral indicators of fraud?
Red flags might show up through internal and external relationships.
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Frequency of Anti-Fraud Controls 1
Internal controls do not guarantee protection against fraud, however
They can help to both mitigate losses and deter some potential fraudsters.
With 43 percent of frauds being detected by tips, hotlines should play an essential role in organizations’ anti-fraud programs.
However, only 64% had a hotline mechanism
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