CASE 12-30 Ethics and the Manager, Shut Down or Continue Operations LO12-2 Haley Romeros had just been appointed vice president of the Rocky Mountain Region of the Bank Services Corporation (BSC). The company provides check processing services for small banks. The banks send checks presented for deposit or payment to BSC, which records the data on each check in a computerized database. BSC then sends the data electronically to the nearest Federal Reserve Bank check-clearing center where the appropriate transfers of funds are made between banks. The Rocky Mountain Region has three check processing centers, which are located in Billings, Montana; Great Falls, Montana; and Clayton, Idaho. Prior to her promotion to vice president, Ms. Romeros had been the manager of a check processing center in New Jersey. Immediately after assuming her new position, Ms. Romeros requested a complete financial report for the just-ended fiscal year from the region's controller, John Littlebear. Ms. Romeros specified that the financial report should follow the standardized format required by corporate headquarters for all regional performance reports. That report follows: "Includes building rental expense for the Billings and Great Falls locations and building depreciation for the Clayton location 'Local administrative expenses are the administrative expenses incurred at the check processing centers. tRegional administrative expenses are allocated to the check processing centers based on sales. 5orporate administrative expenses are charged to segments of the company such as the Rocky Mountain Region and the check processing centers at the rate of 9.5% of their sales. Upon seeing this report, Ms. Romeros summoned John Littlebear for an explanation. Romeros: What's the story on Clayton? It didn't have a loss the previous year did it? Littlebear: No, the Clayton facility has had a nice profit every year since it opened six years ago, but Clayton lost a big contract this year. Romeros: Why? Littlebear: One of our national competitors entered the local market and bid very aggressively on the contract. We couldn't afford to meet the bid. Clayton's costs particularly their facility expenses are just too high. When Clayton lost the contract, we had to lay off a lot of employees, but we could not reduce the fixed costs of the Clayton facility