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Residence Suites ethical scenario

Ethical question:

Residence Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job so turnover is high.

Assistant manager/controller Terry Dunn asked the new bookkeeper to help prepare the hotel's master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel's performance. These performance evaluations affect hotel managers' bonuses and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly controls capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay "bonuses" to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Put yourself in Dunn's position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

The ethical issue is that they are not being completely honest in what they are reporting for cost to corporate. By padding the books this way they can make it look like they are coming in under budget each year, which could impact funding from headquarters.

2. What are my options?

As the bookkeeper, my options would be to research the previous year's books and discuss the situation with Murry and how the behavior most likely goes against corporate policy and is possibly illegal. Another option would be to report everything to headquarters.

3. What are the possible consequences?

Possible consequences could include an audit and replacement of current management, the bookkeeper could be fired for allowing the behavior and possible legal action for the fraud.

4. What should I do?

It would be my due diligence to research and confirm that this matter has been an on-going behavior and looking into corporate policy to verify that this particular use of funding is indeed considered fraudulent. If it is, I would have to meet with Murry to discuss my concerns and would not sign for a fraudulent book set.

Solution Preview

1. What is the ethical issue?

Correct. When the actual expenses for labor and supplies are compared to the budgeted amount, it will appear that Dunn has been conservative in his operations, when in actuality the numbers presented to the corporate office were overstated. He is then using the difference to pay out bonuses and for other reasons unrelated to the labor and supplies expenses. The main ethical issue is if what he is doing is wrong, and under all ethical decision-making theories, his acts are considered unethical because he is being dishonest, and furthermore, he is using the dishonest act to accomplish his own means and not for the betterment of society.

2. What are my options?

The act isn't illegal because it's a budget and not a financial statement. If the falsified numbers were reported on a financial statement, it would be illegal. It is likely against the policy of the ...

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