The situation described below was adapted from a case published by the institute of Management Accountants Committee on Ethics.

WIW is a publicly owned corporation that makes various control devices used in manufacturing mechanical equipment. J.B. is the president of WIW, Tony is the purchasing agent, and Diane is J.B.’s executive assistant. All three have been with WIW for about five years. Charlie is WIW’s controller and has been with the company for two years.

J.B.; Hi, Charlie, come on in , Diane said you had a confidential matter to discuss. What’s on your mind?

Charlie: J.B., I was reviewing our increased purchases from A-1 Warehouse Sales last week and wondered 

Why our volume has tripled in the past year. When I discussed this with Tony he seemed a bit evasive and tried to dismiss the issue by stating that A-1 can give us one-day delivery on our orders.

J.B.: Well, Tony is right, Your know we have been trying to implement just-in-time and have been trying to get our inventory down.

Charlie: We still have to look at the overall cost. A-1 is more of a jobber than a warehouse. After investigating orders placed with them, I found that only 10% are delivered from their warehouse and the other90% are drop-shipped from the manufacturers. The average markup by A-1 is 30%, which amounted to about $600.000 on out orders for the past year. If we had ordered directly from the manufacturers when A-1 didn’t have an item in stock, we could have saved about $540,000 ($600,000 x 9-%). In addition, some of the orders were late and not complete.

J.B.: Now look, Charlie, we get quick delivery on most items, and who knows how much we are saving by not having to stock this stuff in advance or worry about it becoming obsolete. Is there anything else on your mind?

Charlie: Well, J.B., as a matter of fact, there is. I ordered a Dun & Bradstreet credit report on A-1 and discovered that Mike Bell is the principal owner. Isn’t he your brother-in-law?

J.B.: Sure he is but don’t worry about Mike. He understands this JIT approach. Besides, he’s looking out for or interest. 

Charlie (to himself): this conversation has been enlightening, but it doesn’t really respond to my concerns. Can I legally or ethically ignore this apparent conflict of interests?

Required:

1. Would Charlie be justified in ignoring this situation, particularly since he is not the purchasing agent? In preparing your answer, consider the IMA’s Standards of Ethical Conduct.

2. State the specific steps Charlie should follow to resolve this matter.