ACCT 201

Instructions: Read the mini-case below and answer the required question.

Scott Putman owns and operates a lawn care company. Like most companies in the lawn care business, his company experiences a high level of employee turnover. However, he finds it relatively easy to replace employees because he pays above market wages. He attributes his ability to pay high wages to a little accounting trick he discovered several years ago. Instead of paying his half of each employee's FICA taxes to the government, he decides to pay that amount to the employees in the form of higher wages. He then doubles their FICA tax payroll deduction and uses half of the deduction to pay his share of the Social Security tax. For example, suppose he plans to pay an employee $2,000 per month. Technically the employee would have to pay 7.5 percent FICA and Medicare tax ($2,000 x 0.075=150) and Mr. Putman will have to pay a $150 matching payment. Instead of doing it theis way, he decided the following plan. He pays the employee $2,150 and then deducts $300 for FICA and Medicare tax from the employee's salary. The end result is the same.Either way, the employee ends up with net pay of $1850 (2000-150=1850 or 2150-300=1850). Also, the government gets $300 in FICA tax, regardless of how it gets divided between the employee and the employer. Mr. Putman is convinced that he is right in what he is doing. Certainly, it benefits his company by allowing him to offer higher starting salaries. Further, he believes it is a more honest way of showing the real cost of Social Security and Medicare.

Required

Discuss Mr. Putman's actions within the context of the fraud triangle's elements of ethical misconduct that were outlined in Chapter 2.