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ACC563 Assignment 3 Attempt All Questions Read the cases and answer the questions that follows Question 1 Walmart Inventory Shrinkage The facts of this case are from the Walmart shrinkage fraud discussed in an article in The Nation on June 11, 2014. \"Literary license\" has been exercised for the purpose of emphasizing important issues related to organizational ethics at Walmart. Any resemblance to actual people and events is coincidental.1 Shane O'Hara always tried to do the right thing. He was in touch with his values and always tried to act in accordance with them, even when the going got tough. But, nothing prepared him for the ordeal he would face as a Walmart veteran and the new store manager in Atomic City, Idaho. In 2013, Shane was contacted by Jeffrey Cook, the regional manager, and told he was being transferred to the Atomic City store in order to reduce the troubled store's high rate of \"shrinkage\"defined as the value of goods that are stolen or otherwise lostto levels deemed acceptable by the company's senior managers for the region. As a result of fierce competition, profit margins in retail can be razor thin, making shrinkage a potentsometimes criticalfactor in profitability. Historically, Walmart had a relatively low rate of about 0.8 percent of sales. The industry average was 1 percent. Prior to his arrival at the Atomic City store, Shane had heard the store had shrinkage losses as high as $2 million or morea sizable hit to its bottom line. There had even been talk of closing the store altogether. He knew the pressure was on to keep the store open, save the jobs of 40 people, and cut losses so that the regional manager could earn a bonus. It didn't hurt that he would qualify for a bonus as well, so long as the shrinkage rate was cut by more than two-thirds. Shane did what he could to tighten systems and controls. He managed to convince Cook to hire an \"asset-protection manager\" for the store. The asset-protection program handles shrink, safety, and security at each of its stores. The program worked. Not only did shrinkage decline but other forms of loss, including changing price tags on items of clothing, were significantly reduced. However, it didn't seem to be enough to satisfy Cook and top management. During the last days of August 2013, Shane's annual inventory audit showed a massive reduction in the store's shrinkage rate that surprised even him: Page 182down to less than $80,000 from roughly $800,000 the previous year. He had no explanation for it, but was sure the numbers had been doctored in some way. During the remainder of 2013, a number of high-level managers departed from the company. Cindy Rondel, the head of Walmart's Idaho operations, retired; so did her superior, Larry Brooks. Walmart's regional asset-protection manager for Idaho, who was intimately involved with inventory tracking in the state, was fired as well. Shane wondered if he was next. Shane decided to contact Cook to discuss his concerns. Cook explained why the shrinkage rate had shrunk so much by passing it off as improper accounting at the Atomic City store that had been corrected. He told Shane that an investigation would begin immediately and he was suspended with pay until it was completed. Shane was in shock. He knew the allegations weren't true. He sensed he might become the fall guy for the fraud. Shane managed to discretely talk about his situation with another store manager in the Atomic City area. That manager said she had been the target of a similar investigation the year before. In her case, she had discovered how the fraud was carried out and the numbers were doctored, but she had told no oneuntil now. She explained to Shane that the fraud involved simply declaring that missing items were not in fact missing. She went on to say you could count clothing items in the store and if the on-hand count was offas in, you were supposed to have 12 but you only had 10you could explain that the other 2 were in a bin where clothing had been tried on by customers, not bought, and left in the dressing room often with creases that had to be cleaned before re-tagging the clothing for sale. So, even though some items may have been stolen, they were still counted as part of inventory. There was little or no shrinkage to account for. At this point Shane did not know what his next step should be. He needed to protect his good name and reputation. But what steps should he take? That was the question. Questions Assume you are in Shane O'Hara's position. Answer the following questions. 1. Who are the stakeholders in this case and what are the ethical issues? 2. What would you do next and why? Consider the following in crafting your response. How should the organizational culture at Walmart influence your actions? What do you need to say, to whom, and in what sequence? What are the reasons and rationalizations you are likely to hear from those who would try to detract you from your goal? How can you counteract those pressures? What is your most powerful and persuasive response to these arguments? To whom should you make them? When and in what context? Question 2 Franklin Industries' Whistleblowing Natalie got the call she had been waiting for over six long months. Her complaint to the human resources department of Franklin Industries had been dismissed. It was HR's conclusion that she was not retaliated against for reporting an alleged embezzlement by the Accounting Department manager. In fact, HR ruled there was no embezzlement at all. Natalie had been demoted from assistant manager of the department to staff supervisor seven months ago after informing Stuart Masters, the controller, earlier in 2015, about the embezzlement. Her blood started to boil as she thought about all the pain and agony she'd experienced these past six months without any level of satisfaction for her troubles. Natalie Garson is a CPA who works for Franklin Industries, a publicly owned company and manufacturer of trusses and other structural components for home builders throughout the United States. Six months ago she filed a complaint with HR after discussing a sensitive matter with her best friend and coworker, Roger Harris. Natalie trusted Harris, who had six years of experience at Franklin. The essence of the discussion was that Natalie was informed by the accounting staff of what appeared to be unusual transactions between Denny King, the department manager, and an outside company no one had never heard of before. The staff had uncovered over $5 million in payments, authorized by King, to Vic Construction. No one could find any documentation about Vic, so the staff dug deeper and discovered that the owner of Vic Construction was Victoria King. Further examination determined that Victoria King and Denny King were siblings. Once Natalie was convinced there was more to the situation than meets the eye, she informed the internal auditors, who investigated and found that Vic Construction made a $5 million electronic transfer to a separate business owned by Denny King. One thing lead to another, and it was determined by the internal auditors that King had funneled $5 million to Vic Construction, which, at a later date, transferred the money back to King. It was a $5 million embezzlement from Franklin Industries. Natalie met with Roger Harris that night and told him about the HR decision that went against her. She was concerned whether the internal auditors would act now in light of that decision She knew the culture at Franklin was \"don't rock the boat.\" That didn't matter to her. She was always true to her values and not afraid to act when a wrongdoing had occurred. She felt particularly motivated in this caseit was personal. She felt the need to be vindicated. She hoped Roger would be supportive. As it turned out, Roger cautioned Natalie about taking the matter any further. He had worked for Franklin a lot longer than Natalie and knew the board of directors consisted mostly of insider directors. The CEO of Franklin Page 181was also the chair of the board. It was well known in the company that whatever the CEO wanted to do, the board rubber-stamped it. Natalie left the meeting with Roger realizing she was on her own. She knew she had to act but didn't know the best way to go about it. Even though Roger cautioned against going to the CEO or board, Natalie didn't dismiss that option. Questions Assume you are in Natalie's position. Answer the following questions. 1. Consider the following assuming you have decided to act on your values: What are the main arguments you are trying to counter? That is, what are the reasons and rationalizations you need to address? What is at stake for the key parties, including those who disagree with you? What levers can you use to influence those who disagree with you? What is your most powerful and persuasive response to the reasons and rationalizations you need to address? To whom should the argument be made? When and in what context? 2. Assume you decide not to follow the script outlined in question 1 to bring the matter to the attention of others in the organization for fear of being fired. Do you think you have sufficient standing to file a whistleblower claim with the SEC under the Dodd-Frank Act? Explain