Best Farm Products Case

Best Farm Products (BFP) is a privately held wholesaler. The company distributes a variety of dairy products to commercial and institutional consumers. These include manufacturers, educational institutions, state and municipal agencies, and nonprofit organizations.

Morgan Husk (a staff accountant) has worked at Best Farm for eight years, and her current job duties include overseeing the accounting for the manufacture of a variety of distributed product lines, including the companys standard and premium yogurts. Morgan is both a CMA and a CPA.

As is common for many accounting professionals, Morgan was asked to become a member of a state nonprofit board. The organization, Parent Helper (PH), administers a statewide childcare network for the children of working parents. In addition to standard childcare, PH provides food supplements for needy students through a program sponsored by a state agency.

Morgans job duties as a board member require her to review PHs documentation for the state nutrition program. To do so, she scheduled a meeting with Maria Stapleton, the office manager with PH, to discuss the program. Heres the conversation that transpired -

Morgan - Thanks for meeting with me. Can you explain to me how you go about getting reimbursed under the state food program?

Maria - Well, we dont really get reimbursed, which is one of the nice things about the program. The centers are certified by the state, and then we sign on with local food distributors. We send them our weekly requests for whatever food the centers need, and they invoice the state directly for payment.

Morgan - That is easy for the centers, but doesnt anyone ever check to see what you actually use?

Maria - The state doesnt, but some of the distributors we work with do. Our contracts specify we have to let them review the records for the products we consume. Actually, we do business with BFP, although they never send anyone. You people have the best yogurt. The kids really love the mixed fruit.

When Morgan returned to work the next morning, she was curious about the contractual arrangements between PH and BFP. How the state decided to fund its programs wasnt really her problem, but she was curious whether they relied only on the word of suppliers to issue payments.

Morgans area is manufacturing, but sales of the yogurt her group produces are actually under the control of Tim Harvey, her supervisor and BFPs CFO. The invoices BFP sends to the state are available to any BFP accountant. That morning, Morgan pulled up the most recent one.

Much to her surprise, the invoice listed that 80 cases of BFPs premium Greek yogurt had been shipped to PH rather than the standard yogurt shed seen in their files. This must be an error, she thought and pulled up all the invoices for the last six months.

As it turned out, this was not an error! All of the invoices for the prior six months were for the more expensive yogurt! Morgan downloaded the entire file for the program and returned to PH that evening to compare the two sets of invoices.

It appeared that, barring the first months on the contract, the state had been billed for the more expensive product although PH continued to receive the less expensive, standard yogurt. The difference is significant. Premium yogurt is priced at almost twice the cost of regular yogurt. The PH center is a large consumer - over the course of the contract, the difference amounted to more than $40,000!

Dismayed at what she had uncovered, Morgan organized her materials and made an appointment to speak with Tim Harvey. Here is their conversation -

Tim - I looked over the materials you sent me, and frankly I must agree we have a serious problem here!

Morgan - Im so relieved you agree as this has bothered me for days. What do you think we should do?

Tim - We? I dont think we have a problem, but you do. I am seriously concerned about your membership on the board of an agency we do business with. Have you never bothered to look over the conflict of interest policy we have? You may be putting your career in jeopardy.

Morgan - Sorry? I dont understand.

Tim Let me be clear. We do business with PH. You cannot be a member of their board. This is the first time we have ever had this come up with you, so if you tender your resignation from the PH board immediately, Ill let it pass.

Morgan - Of course I dont want to violate any company policies, but what about the yogurt?

Tim - What about it?

Morgan - The invoices dont match! BFP is charging the state for something they arent giving to PH.

Tim - Nonsense. I handle the account myself, and I assure you, youre wrong. Nothing gets paid for something we arent delivering. This is why we have the conflict of interest policy. People like you get confused about where they work and what theyre doing. Now leave the PH account to me and have a copy of your board resignation letter on my desk by the end of the day. Anything else?

Morgan I.I.I guess not. Ill get right on it.

Tim - Good. Lets get this taken care of, and we wont need to deal with the matter further. You are an excellent employee, and Id hate to see something like this sidetrack your career.

After the meeting, Morgan went back to her office. She placed a call to BFPs human resource office to see whether the company had any specific guidance concerning the issues she was dealing with. She was informed that the company did have a conflict of interest policy (see BFPs Conflict of Interest Policy below), but otherwise had no comprehensive ethics policy.

Morgan began writing her letter of resignation from PH but found it difficult to concentrate. The situation did not seem to be resolved, but she was at a loss for what to do.

REQUIREMENTS You are to prepare answers to the following. Your responses should be brief and to the point. You response needs to be typed, double spaced, and submitted separate of this packet of material.

1 - What is a conflict of interest in the workplace? What is the purpose of a conflict of interest policy? What basic responsibilities does BFPs policy contain, and to whom do they apply?

2 - After reviewing BFPs policy concerning conflicts of interest (see below), do you agree with Tim Harvey that Morgan violated their policy? Why or why not?

3 - Examine the IMA Statement of Ethical Professional Practice (see below). Assume the role of Morgan Husk. She (you) must address the following

A - Identify the ethical dimensions in this case.

B - Identify any professional codes of behavior that may factor into the ethical aspects of this case.

C - Identify at least two alternative courses of actions in this case that takes into account the ethical dimensions identified. What is your recommended course of action? Explain you reasoning.

D - Describe the impact of your recommended course of action on any/all relevant stakeholders.

BEST FARM PRODUCTS CONFLICT OF INTEREST POLICY

SECTION 1 PURPOSE -

There exists between BFPs board, officers, management, employees, and the public a duty to administer the affairs of BFP honestly and prudently, to exercise their best care, skill, and judgment for the sole benefit of BFP.

As a BFP employee, you are expected to act at all times in the Companys best interests and to exercise sound judgment unclouded by personal interests or divided loyalties. Both in performing your duties at BFP and in your outside activities, you should avoid the appearance as well as the reality of a conflict of interest.

SECTION 2 - PERSONS CONCERNED -

This statement is directed to all board members, officers, management, and employees who can influence the actions of BFP. For example, this would include all who make purchasing decisions, all persons who might be described as management personnel, and anyone who has proprietary information concerning BFP.

SECTION 3 - CONFLICT OF INTEREST DEFINED -

A conflict of interest exists if your circumstances would lead a reasonable person to question whether you had a personal or private interest sufficient to appear to influence whether your decisions were made in the best interests of BFP. Note that this requires avoiding both actual conflicts and actions that give the appearance of conflicts of interest. Such conflicts may exist even in a case where no monetary interest or gain is involved.

SECTION 4 - NATURE OF CONFLICTING INTEREST -

A conflicting interest may be defined as an interest, direct or indirect, with any persons or firms that create the situations described in Section 3. Such an interest might arise through:

1-Owning stock or holding debt or other proprietary interests in any third party dealing with BFP.

2-Holding office, serving on the board, participating in management, or being otherwise employed (or formerly employed) with any third party dealing with BFP, including but not limited to nonprofit organizations.

3-Receiving remuneration for services with respect to individual transactions involving BFP.

4-Using BFPs time, personnel, equipment, supplies, or goodwill for other than BFP-approved activities, programs, and purposes.

5-Receiving personal gifts or loans from third parties dealing or competing with BFP. Receipt of any gift is disapproved except gifts of a value less than $50, which could not be refused without discourtesy. No personal gift of money should ever be accepted.

6-Family and romantic relationships.

7-Spouses, domestic partners, immediate family members, or relatives as suppliers, vendors, and business partners.

8-Kickbacks and rebates by suppliers or vendors.

9-Honoraria.

SECTION 5 - INTERPRETATION OF THIS STATEMENT OF POLICY -

The nature of conflicting interest described in Section 3 and the relations in those areas that may give rise to conflict, as listed in Section 4, are not exhaustive. Conflicts might arise in other areas or through other relations. It is assumed that the directors, officers, and employees will recognize such areas and relation by analogy.

The fact that one of the interests described in Section 4 exists does not necessarily mean that a conflict exists; or that the conflict, if it exists, is material enough to be of practical importance; or, if material, that upon full disclosure of all relevant facts and circumstances it is necessarily adverse to the interests of Best Farm.

However, it is the policy of the board that the existence of any of the interests described in Section 4 shall be disclosed before any transaction is consummated. It shall be the continuing responsibility of the board, officers, management, and employees to scrutinize their transactions and outside business interests and relationships for potential conflicts and to make such disclosures immediately.

SECTION 6 - DISCLOSURE POLICY AND PROCEDURE -

Transactions with parties with a conflicting interest exists may be undertaken only if the following are observed -

1-The conflicting interest is fully disclosed

2-The person with the conflict of interest is excluded from the discussion and approval of such transaction

3-A competitive bid or comparable valuation exists

4- The management of BFP has determined that the transaction is in the best interest of the organization.

Disclosure in the organization should be made to the employees supervisor, who will, in turn, pass the information to BFPs Conflict Review Committee. In cases where the supervisor is a party to the conflict, the matter will be brought directly to the Committee.

The Committee shall determine whether a conflict exists and, in the case of an existing conflict, whether the contemplated transaction may be authorized as just, fair, and reasonable to BFP. The decision of the Committee on these matters will rest in their sole discretion, and their concern must be the welfare of BFP and the advancement of its purpose.

IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE

Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values and standards that guide our conduct.

PRINCIPLES -

IMAs overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them.

STANDARDS

A members failure to comply with the following standards may result in disciplinary action.

I. COMPETENCE

Each member has a responsibility to

1-Maintain an appropriate level of professional expertise by continually developing knowledge and skills

2-Perform professional duties in accordance with relevant laws, regulations, and technical standards

3-Provide decision support information and recommendations that are accurate, concise, and timely

4-Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

II. CONFIDENTIALITY

Each member has a responsibility to -

1-Keep information confidential except when disclosure is authorized or legally required

2-Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates activities to ensure compliance

3-Refrain from using confidential information for unethical or illegal advantage.

III. INTEGRITY

Each member has a responsibility to

1-Mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest, and advise all parties of any potential conflicts

2-Refrain from engaging in any conduct that would prejudice carrying out duties ethically

3-Abstain from engaging in or supporting any activity that might discredit the profession.

IV. CREDIBILITY

Each member has a responsibility to

1-Communicate information fairly and objectively

2-Disclose all relevant information that could reasonably be expected to influence an intended users understanding of the reports, analyses, or recommendations

3-Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.