Through managerial accounting, organizations receive the information they need so that they can plan, make decisions, and oversee business processes. Although an organization’s accounting statements (both internal and external) should fully and transparently reflect the organization’s actual financial situation, sometimes they do not. Sometimes there is intentional deception or fraud. Yet, even when an organization uses legal and accepted accounting practices, accounting statements may fail to present risks or explain unusual costs, profits, or assumptions. In this Discussion, you will consider your professional experience to recommend ways to ensure ethical responsibility within an organization.
Think about a time in your professional experience when a decision was made based on inaccurate accounting information or unethical behavior resulting in fraudulent information. If you do not have professional experience directly related to accounting and decision making, research a situation in which inaccurate or fraudulent accounting information was provided by a company. Consider the outcomes of utilizing fraudulent accounting information for decision making and research how to avoid such situations.
Post your proposed recommendations for ensuring ethical responsibility within an organization, to include the following:
Describe the situation from either your professional experience or your research in which unethical or fraudulent behavior occurred. If you are describing an example from experience, please do not report real names of either the company or individuals. If you are using an example from research, you must include the reference and citation of the source.
As a manager, explain the steps you would have taken or did take to address the described unethical behavior. What methods or techniques could have been used to both detect and mitigate the described situation?
As a manager, propose what actions you could take to help prevent situations of unethical or fraudulent behavior in managerial accounting.
Managerial Steps to Address and Detect the Behavior
As a manager overseeing this area, my immediate and long-term steps would focus on integrity, transparency, and system controls.
Steps to Address the Behavior
Immediate Investigation and Disclosure:
Stop the Practice: Immediately halt the current accounting classification practice and notify the manager that an investigation is underway, with the immediate assistance of the Internal Audit team.
Recalculate and Re-state: Work with the CFO's office to quickly re-state the past two quarters of financial reports to accurately reflect labor costs as operating expenses. Full transparency is required for the executive team and the Board to correct the misleading decisions made based on the fraudulent data.
Disciplinary Action: Following the investigation, disciplinary action must be taken against the manager, aligning with the severity of the violation, which constituted material misrepresentation of financial results for personal gain (fraudulent reporting).
Sample Answer
Managers rely heavily on accounting information to make crucial decisions about resource allocation, planning, and control. When this information is inaccurate, misleading, or intentionally fraudulent, the entire organization is put at risk. Ensuring ethical responsibility requires a multi-faceted approach involving strong controls, organizational culture, and proactive managerial oversight.
Unethical/Fraudulent Behavior Situation
I will describe a situation based on my professional experience in a prior healthcare organization, ensuring no real names or identifying details are used.
Situation Description (Fictionalized Experience)
In a large multi-site healthcare system, I observed a situation where a departmental manager consistently manipulated managerial accounting reports to meet budget targets for bonuses. The specific area of manipulation was labor expense capitalization.
The standard operating procedure required all direct patient care labor costs to be expensed monthly. However, this manager, facing severe pressure to keep operational costs low, began classifying a significant portion of their full-time employee (FTE) labor costs (primarily for time spent on process documentation and mandatory training) as capital expenditures related to a new internal Electronic Health Record (EHR) rollout. The rationale was that this time "developed" an internal asset (the new system's documentation and training modules).