Michael Sparks, or "Sparky" as his friends call him, is the manager of sales for the North Central District of a large, publicly held consumer products company. He is also your next-door neighbor. Always cheerful and smiling, he is the type of neighbor most people long to have.

One day, you see Sparky taking out the trash and notice his forlorn face and his somber step. You know immediately something is gravely wrong. "Sparky, what is the matter?" you ask. All he says as he puts the trash bag in the can is, "I think I am going to be fired on Monday."

You are taken aback. Sparky has been the leading salesperson for this company for years. He not only still has his own customers, but he also manages dozens of salespeople under him. He has more "Best Boss" mugs in his cupboard than anyone you knew. All you can ask is, "Why?"

Sparky relays the situation: "A year ago, the company hired a new president to steer the company away from financial perilthe current economy had created a cutthroat environment for these types of consumer products. Our company kept falling short of analysts' forecasts, and the stock price had fallen drastically until this president came onboard.The new president not only wanted to maintain the current level of sales, or increase it, but also wanted to reduce costs.He asked employees to find ways to boost the bottom line.He asked the internal audit staff to look for ways to decrease inefficiencies and waste. Moreover, the new president's goal was to accomplish this without massive layoffs.The company's overall mission was "to be honest, fair, and responsible to our stockholders, to our employees, and to our community."He felt massive layoffs would go against this philosophy."

You are confused: "Then why do you think you would be fired? It sounds like this guy does not want to get rid of people."

"Well," Sparky replies, "Our internal audit department rotates divisions to be audited, and it was my division's turn this year. When the internal audit staff members audited my sales district, they found numerous unethical and questionable practices, mostly occasions when sales staff entertained customers. They discovered most of the problems when they audited the expense reports submitted by my sales staff." "Like what?" you ask. Sparky shook his head and put his hands over his face.

"Oh, geez," he says, "where do I start? First,a salesperson from Region A submitted meal receipts for 'XYZ Charities.' He and a particular customeractually one of the company's largestfrequented this place a lot.At first the internal auditors thought he was running charitable contributions through the company. But when an auditor called the phone number on the receipts, he found out the establishment was a gentlemen's club. When the auditors and I questioned the salesperson about it,he said the customer pressured him to go there and threatened to walk if he didn't. The salesperson knew the president wanted to maintain customers and gain new ones, so he felt he had no choice."

"Second," Sparky barks, "came high ticket items such as trips, concerts, and sporting events. One salesperson from Region J was supposed to take another customer, who made up almost 80% of her sales, on a ski trip to Jackson Hole. It was supposed to be the customer and her family and my salesperson and her family on the trip. At the last minute, the customer's kids came down with the flu, and my salesperson took her own neighbors instead. She ran all expenses through the company. When an auditor did not recognize the names of the neighbors, she questioned this salesperson.My salesperson said that the tickets were non-refundable and if she did not go, they would go to waste."

"Then," Sparky goes on, "other customers asked my team to get them concert ticketsI mean $1,000 apiece, front row tickets to U2. One of my staff members bought season tickets to an NFL team andoccasionally took a customer, but mostly took his wife, brother-in-law, and sister. Again,ran it all through the company."

"Another instance involved allowance for meals," Sparky said. "Our company allows traveling salespeople to get $75 per day for meals and incidentals without having a receipt.One of my guys ran through $74.95 every day he traveledfor the past three years. Then, there was a salesperson from Region Z who had a customer who always had huge meal tickets, mostly because of wine. The internal auditor understood that wine is often part of the meal, but the amount of bottles for a couple of people seemed excessive. When the internal auditor asked her about it, she said thecustomer insisted on taking two or three unopened bottles of wine home with him and including it on the bill. Then, there was a case where one of my salespeople from Region T held dinner meetings with a group of sales staff and clients,yet no clients ever attended."

You have to interrupt; your curiosity is getting the best of you. "How did you find out there were no customers there?" "Well," Sparky replies, "The internal auditors did some digging. These were large dinner bills, and there were a lot of people at the dinner. The internal auditor couldn't read the names of some of the customers who were listed on the billbad copy, I guess. He tried to get in touch with the salesperson, but he was out of the country on vacation. So, the internal auditor, wanting to wrap up this portion of the audit, happened to contact the purchasing manager of the company who attended the dinner to get the names of his subordinates. Turns out, neither he nor his subordinates were at that dinner.When the auditor looked into more dinner receipts submitted by this same salesperson, the auditor found that many times it was just the salesperson treating his sales staff to dinnerno customers." At this point, you are having a hard time believing all of this. "Anything else?" you ask.

Sparky replies, "Actually, come to think of it, there was one more instance uncovered by the internal auditors. Given where my division is located, up here near Fargo and Frostland, I had a couple of subordinates who had clients in the U.S. and Canada. The salespeople traveling to visit U.S. clients were told to send their expenses through my division in the U.S. If the majority of their travel expenses related to their Canadian customers, they send it to my counterpart in Canada. Well, a salesperson in Region G would visit some clients in the U.S. and then drive up to Canada and visit some clients there.Instead of submitting the expenses either to my division or to the Canadian division, she submitted it to both of us. I cannot tell you how many times she did thatgot reimbursed twice for the same expenses.I fired her on the spot; I was furious. I also fired the guy who lied about having clients attend those dinners.

"But, in these other instances, my team said they knew what a competitive environment it was and felt pressured to do what the customers wanted, or they would lose the customers' business. They felt that these expenses were just a small price the company paid to gain millions of dollars in sales.So, the human resources director is looking at their personnel records and will make the call on them. That's out of my hands. Meanwhile, I am meeting with my boss, the vice president of sales and marketing, and the internal audit team on Monday. My boss is flying in bright and early Monday morning. She is getting serious heat and pressure from the president. She basically told me to come up with some solutions to these problems or kiss my 'comfy' job goodbye."

You just stand there thinking. While you never had worked as an external or internal auditor, you had studied auditing in college and, more recently, reviewed internal controls for the CMA(Certified Management Accountant) exam last year. In fact, the topic of internal controls was a significant portion of the first part of the exam. Two things keep bugging you through Sparky's account of events:(1) Who was reviewing these expense accounts? and (2) What did the company's code of ethics say about things like this?So, you ask Sparky.

"Geez," Sparky says, "I was supposed to be reviewing these items, I guess. I mean, I had that responsibility, but I was also managing my team and my own customers, so I delegated it to my administrative assistant. I sat down with her for a whole day about things to look for. I told her to bring anything questionable to me, and I would look at it. When I asked her about these situations, she said she felt bullied by the salespeople. She said when she asked the salesperson from Region A about the XYZ Charities receipts, he yelled at her and said, 'You don't know what you are talking about. Mind your own business and leave me alone to drum up sales to cover your salary!' After that, she got scared to inquire about anything else and just signed my initials on anything and everything. So, I can understand why my boss will probably fire me. I shirked on my duties.

"As far as the code of ethics, the company came up with one to comply with SOX in 2003. But it was really geared toward those higher-up finance execs. Most of the rest of us in the company ignored it because it really did not apply to us. Like I told you, the company's overall mission was 'to be honest, fair, and responsible to our stockholders, to our employees, and to our community.' I always abided by that. I trusted my team to do the same."

"So what are you going to do, Sparky?" you ask. Sparky replies, "I guess take my lumps and my pink slip on Monday. I do not know where I would even begin to suggest ways to fix these problems. My fear is finding another job around here, especially in sales. I worked my way up through the company since college. It is not like I am going to get a stellar recommendation from them, anyway, after this mess." He looked ashen at this point.

Well, Sparky," you say, "I am not sure it will help or not, but your boss said to come up with some solutions. Instead of giving up, you might as well try, and I am going to help you. Let me take some time to think about these things, and I can meet you tomorrow (Sunday). We can work all night if we have to in order to come up with a presentation to give to your boss and the internal auditors that addresses these issues." Sparky is taken aback, but some color starts to return to his face. "What are you thinking?"

"Well," you answer, "first,we are going to come up with some recommendations for these internal control weaknesses surrounding business entertainment expenses. This might be exactly what the internal auditors want to discuss on Monday, but you are going to beat them to the punch. Second,we are going to specifically describe how these internal control weaknesses are also ethical violations to your company's overall missionand recommend that a formal code of ethics be implemented that applies to all employees, not just the top ranks.You could take the initiative, and list some specific standards that your company might want to use in its code of ethics.The organization I belong to, IMA(Institute of Management Accountants), has a code of ethics called theIMA Statement of Ethical Professional Practicethat has four overarching ethical principles: Honesty, Fairness, Objectivity, and Responsibilitythree of them are the same as in your company's mission statement. While IMA gears its principles and standards toward financial professionals, I believe all of the principles and many of the standards would apply to sales personnel and others at your company. In fact, some of the internal auditors might be IMA members; you can tell them that your recommendations are based off of theIMA Statement,IMA being a highly respected organization.Also, write down anything else you think might help and we will try to incorporate it into the presentation.I will see you tomorrow."

Identify the internal control weaknesses in regards to information and communication and provide recommendations to prevent or minimize their recurrence in the future.