Stephen P. Hunt and Dr. Steve Albrecht, School of Accountancy and Information Systems

Most business students will eventually work with an unethical colleague whose schemes must ultimately crumble. The unethical person could drag his coworkers and his company down with him. We must prepare today’s business students (tomorrow’s executives) to save their own names and rescue their companie s when that day comes.

My study involved researching and writing case studies, or scenarios, that prepare business students to defend themselves and their companies from unethical colleagues. These cases include all relevant details, but they are short enough for a teacher to use in a classroom environment. They put the students in true situations where they must decide for themselves how to respond to unethical workers around them. Thus, the students must think analytically and solve detailed problems that have no set answers. The students can use the cases to establish a personal moral code for their future actions. Then, when they are actually required to deal with an unscrupulous coworker, they will know how to proceed.

I finish with an excerpt from a case study produced through my research. In order to describe this incident as it truly happened, I interviewed two of the participants, and I attempted to interview the third. I examined several documents provided by the CPA firm involved, including a copy of the lawsuit, letters to and from attorneys, office memos, and hand-written notes. Finally, I studied local newspaper articles printed at the time of the scandal, and I researched the generally accepted accounting principles that deal with this type of situation. Some research remains on my other case studies before I can publish them for classroom use.

Sample Case Study

A Partnership Gone Wrong

Ken O. Edwards1 joined Chris J. Kidd and Sterling K. Mitchell in July of 1993. The three certified public accountants formed Kidd, Mitchell & Edwards, PS, CPAs (hereafter KME), a corporation with a single office in Kennewick, Washington. The partners ate lunch together weekly and discussed their personal lives and their families with each other. They also attended the same church. They were friends, and they trusted each other.

On April 23, 1997, Chris entered his firm’s conference room to meet with his two partners and to discuss a lawsuit. In the lawsuit, a client had sued KME and had accused Chr is’ partner, Ken, of several unethical business practices. The three partners wanted to agree on a settlement offer at this meeting. Accordingly, Chris came to the meeting ready to offer nearly $60,000 of his personal savings and investments. His partner, Sterling, was prepared to mortgage his home. Both were willing to sacrifice for their friend and partner, Ken.

In contrast, Ken had no money to offer. He was prepared to let his partners bail him out of the lawsuit, which he alone caused by not repaying $100,000, which he borrowed from a client. In addition, Ken did not want Chris and Sterling to know about another pending lawsuit because he feared they would not help him with the first one if they knew. Ken’s lawyer, however, felt that concealing the new lawsuit was wrong, and he finally convinced Ken to tell Chris and Sterling. Soon they all knew that Ken’s borrowing could generate up to twelve other costly claims against KME. They ended the meeting and went home to ponder the firm’s next step.

Chris wanted to do the right thing. All along, he had tried to give Ken the benefit of the doubt. Chris wanted to help and support him because that is what friends and partners do, even in difficult times. Yet, his “friend”—accused of securities fraud, mail fraud, interstate wire fraud, and racketeering—seemed willing to take money from Chris and to bankrupt the firm without batting an eye. Ken’s actions had hurt several KME clients. Chris realized that if KME settled the first suit, other clients would surely demand a similar settlement. Chris had to decide how to handle Ken, the lawsuit, and his clients.

Ken’s Background

Before coming to KME, Ken was a partner in another accounting firm where he had also been involved in questionable ventures. He wo uld borrow money from wealthy clients and loan it to clients with needs. Chris knew about Ken’s past, and he carefully questioned Ken when he joined the firm. Chris did not want Ken borrowing money from clients. Ken promised he would not. Chris and Sterling thought Ken knew his previous actions were wrong, and they believed Ken would not borrow from KME clients. They let him join their partnership.

Throughout their partnership, Chris noticed that Ken held meetings at KME that did not produce billings. Once, Chris specifically asked Ken if he was borrowing money from clients. Ken replied that his other business ventures financed all their operations through established financial institutions. Chris trusted his partner—he had no reason not to.

When KME first received the lawsuit, Chris asked Ken about it. Ken again insisted he had done nothing wrong and had not borrowed from his clients. He called the lawsuit a misunderstanding, an error, and an isolated event. He said he would fix the problem alone. Now, almost two months later, it was clear Ken was doing nothing to settle the lawsuit. Questions for Classroom Discussion

Discuss the following questions with your class. Explain the reasoning behind all your answers.

· Should Chris have let Ken join the firm? Why or why not?

· Should Chris have monitored his partner better? If so, how?

· Should Chris have trusted Ken so much? Why or why not?

· What should Chris have done when Ken said he would take care of the lawsuit?

· What should Chris do about Ken?

· What should Chris do about the lawsuit?

· What should Chris tell his clients?

· How can Chris establish safeguards to keep these problems from reoccurring in the firm?

· Should you offer to help a partner whose outside business ventures are in trouble