Law and regulation

3.1 Theft and fraud 3.2 Bribery and corruption 3.3 Money laundering 3.4 Data security 3.5 Health and safety legislation 3.6 Submission and audit of accounts and filing requirements

Professional ethics

4.1 Introduction00:06:12 4.2 Codes of ethics for accountants 4.3 Threats to the fundamental principles00:26:51 4.4 Safeguards against threats to fundamental principles 4.5 Ethical conflict resolution00:07:53 Quick quiz00:08:43

Personal effectiveness at work

5.1 Introduction00:10:40 5.2 Characteristics of personal effectiveness

Personal values

6.1 Introduction00:02:16 6.2 Rules v Principles00:14:57 6.3 The main ethical theories00:21:56 6.4 Applying personal and ethical values00:20:11 6.5 Making ethical decisions00:03:41 6.6 Framework for ethical decision-making00:02:42

The Ashley Copper Company

Ashley Copper Company is based in a disused copper mine situated in an economically depressed area. The mine had been reopened as a museum and tourist attraction. The income from the business is generated from ticket sales to visitors for a ride down the shaft in a lift cage, for a trolley cart rail journey into the old copper mine and for a guided tour. The shop, situated underground as part of the museum, sells copper based products and other souvenirs which provides an additional source of income. Ali is a qualified accountant and a member of ACCA which has an ethics Technical Advisory Service as part of its support to members. Ali had been unemployed for a short period before being appointed over 12 months ago as the financial accountant by Sam, the owner of Ashley Copper Company. Sam is a very close friend of Ali's father. Sam owns 100% of all the shares in the company. Soon after she was appointed, Ali, who reports directly to Sam, had set up new accounting and internal control systems for the business. Jay, the assistant manager, is the son of Sam. Jay is very materialistic, loves fast cars and has previously said to Ali that he would buy one if only he could save up enough money. Jay works at the museum escorting the customers to the mine shaft entrance, collecting their tickets as they enter the lift cage and acts as their tour guide underground. Charlie sells all the tickets from a dispensing machine in the sales office using a colour coded roll for each day with each roll of tickets numbered in sequence for that day. Charlie collects takings from customers in an electronic cash register with an integrated credit / debit card terminal. At the end of each day after Charlie has finished work, Jay unlocks the cash register, reconciles the physical cash and cheques received with the cash register (till) roll record and finally reconciles all daily sales takings (including credit / debit card sales) with all the tickets he has collected from customers. He then completes a sales reconciliation schedule recording cash, cheques and credit / debit card sales itemised for each day before putting the cash, cheques, and all tickets collected from customers into the office safe. Jay then removes and destroys what remains of the ticket roll from the dispensing machine, replacing it with a new colour coded roll of tickets ready for the next day. He also removes and disposes of the used cash register roll for that day, replacing it with a new blank roll. All cash and cheques from the safe are taken by Jay to the bank at the end of each week. Finally, the bank paying-in slip counterfoil, along with the sales reconciliation schedule containing a daily record of the number of tickets sold for the week (by sales type) and the associated tickets for each day, are then submitted on a weekly basis to Ali for recording in the books of account. The shop is solely managed by Sam. Sam orders the inventory, collects and counts the takings and deposits these at the bank on a weekly basis, submitting to Ali all the bank paying-in slips, the associated cash register records, all purchase invoices and expense receipts all on a monthly basis.

In the past two years, during the peak period, numbers of visitors have consistently been about three times higher than the average for the non-peak period and sales have remained broadly static each year. Over the same two years this pattern of sales has also been reflected at the shop, indicating that shop revenues are largely dependent on visitor numbers. Shop sales have historically also accounted for about 40% of the total turnover of Ashley Copper Company annually. At the end of the current financial year, Ali was producing the draft financial statements and noticed that shop takings had increased by approximately 50% and the gross profit margin had also increased quite significantly from the previous period, with the greater percentage increase being in the off-peak period. Shop sales had accounted for approximately 55% of the total sales for the current year, while over the same period, ticket sales were consistently about 20% down on the previous year, in both the peak and off-peak period. Ali had also noticed that the business bank balance was 10% higher than at the same time in the previous year, despite costs on both sides of the business remaining stable over time and there being no other deposits, bank transfers or any significant change in the dividends paid to Sam in the current year. Ali found these results rather surprising and had also noticed, but had not mentioned this to Sam, that Jay had recently bought a brand new luxury sports car and she suspected that Jay may have been defrauding the company.

Q1 Jay has a new luxury sport car Ali had set up a new accounting and control system system Charlie has no chanse to defraud the company It is Jay, who does the sales reconciliation at the end of each day, and destroy the unsellmSaed tickets Ali got this job, because his father and sam are close friends Q3 integrity - It is Ali's role to make sure statements does not contain misleading or false information Objectivity - Ali should leave out of concideration that Sam and her father are very close friends and act as a professional Professional Behaviour - Ali has to avoid any action may bring discredit to the profession Q4

She should make review procedures or internal audit to find out has any illegal action happened.Check all the bank counterfoils and the reconciliation schedules. Confer them and find the variances. She sould set up policies and procedures to deal with illegal behaviour.

What should Ali do now? Using the framework for ethical thinking introduced in Section 6, it is now time to begin a process to identify the options or alternatives available to Ali. When you have completed each step you will be able to view the correct answers. You should note that on viewing the correct answers you will be unable to amend the answers given by you. STEP 1 - What are the relevant facts? Type at least five key facts that Ali would need to be aware of when deciding her options:

You have 1 characters remaining View the Step 1 answer. 1. Sales in the shop have increased significantly, particularly in the off-peak period while the sales office turnover has declined in the same period, as compared with the previous financial period. 2. Ali is relatively new to the job as accountant and has been appointed by Sam, a good friend of her father. She was previously unemployed and suitable alternative employment may be very hard to obtain in this area. 3. Ali has set up the accounting and internal control systems within the business.

4. Weak internal control and a lack of segregation of duties seem to exist within the business because Jay collects the tickets for the mine tours, reconciles the tickets sold with sales made, banks the takings and has the opportunity to remove cash and destroy associated tickets before any supporting documents are submitted to Ali. The museum shop is managed and controlled by one person, Sam the owner, who manages the shop, orders inventory, collects the takings and makes all bank deposits.

5. Charlie, the ticket sales person had no opportunity to defraud the company because all receipts in the cash register are reconciled against the tickets collected by Jay from all customers. Therefore cash could not have been removed by Charlie without Jay noticing any discrepancies. 6. Sam would not seem to have the motive (as 100% owner) or the opportunity to have been involved in any fraudulent activity at the sales office, as she managed the shop. 7. Jay has recently acquired a luxury car which he probably couldnt afford to finance on his current salary. 8. 9. 10. 11. Ali suspects Jay of fraud. Ali has no actual proof to support her suspicions about Jay. Sam is Jays mother. Sam is a very close friend of Ali's father.

STEP 2: What are the ethical issues involved? List at least three ethical issues, dilemmas or questions that you believe Ali may face in this situation.

You have 9 characters remaining View the Step 2 answer. 1. What is Alis professional and ethical duty to explore the reasons for the unexplained financial results and what grounds are there for suspecting any illegal activity? 2. Does Ali, as the company accountant, have a moral obligation to protect the interests of Sam, the owner of Ashley Copper Company from potential fraud by Jay, her son? 3. To what extent is Ali personally responsible for any suspected losses by allowing the weak internal control situation to develop? 4. To whom, if anyone, should Ali report her suspicions about Jay to?

5. How should Ali handle her suspicions - does she have a duty to collect more evidence before acting or should she act as quickly as possible as far as reporting this is concerned?

6. What implications will Ali reporting her suspicions potentially have for Sam, for Jay and for Ali personally and professionally? 7. What can Ali do to minimise any potential damage or conflict within the business and the family, caused by this situation? 8. What are the ethical consequences of not doing anything?

STEP 3: Which fundamental professional principles are being threatened? List at least 3 threats to fundamental professional principles that Ali could face in this situation.

You have 1 characters remaining View the Step 3 answer. 1. Would discussing the issue with her father threaten confidentiality or her own objectivity or independence? 2. Would the independence and objectivity of her fathers advice to Ali be threatened by his familiarity with Sam? 3. Is Alis integrity likely to be threatened if she puts herself in a position where she confronts Jay or Sam without proper supporting evidence, i.e. through potential bribery or intimidation by either Jay or Sam? 4. Is Alis professional competence and due care to promote effective internal controls such as introducing greater segregation of duties at the sales office and in the shop, threatened by intimidation by Sam or Jay who may have a self-interest in not having proper safeguards? 5. Are the fundamental principles of confidentiality and professional competence and due care threatened if she reports her suspicions to the authorities prematurely, without sufficient evidence? 6. Is professional behaviour or integrity threatened by a self-interest to keep her job or to avoid potential intimidation, if Ali ignores the situation and does nothing? STEP 4: Do internal procedures exist to mitigate against any of the above threats? Explain how Ali could use any internal procedures or services to help her in this situation.

You have 30 characters remaining View the Step 4 answer. 1. As an independent and family owned business, there seem to be no formal internal procedures available to Ali to safeguard against these threats, other than to report matters to her immediate line manager, Sam the owner. 2. Ali does have the opportunity to contact her own professional association (Technical Advisory Service) to seek technical advice which may help her safeguard against any potential ethical threats, or threats to fundamental principles. 3. As there is no official governance structure or any internal audit function within such a small organisation, Ali herself may need to personally carry out any internal audit investigation before deciding how, or whether to take matters any further. STEP 5: What are the possible alternatives facing Ali? List as many as possible options available to Ali in this case.

View the Step 5 answers. 1. 2. 3. 4 5. 6. Discuss her suspicions directly with Jay. Mention the matter to her father and ask for advice. Talk to Sam directly about the unusual trading patterns. Talk to Sam about improving internal controls. Consult her professional accounting body about the situation. Collect more proof about potential fraud and investigate Jay further.

7. Carry out an investigation into the shop sales to establish reasons for unexplained changes in turnover and profit margins. 8. 9. Contact the police about her suspicions directly. Wait a few weeks before taking any action.

Evaluate each initial option against the two main ethical approaches introduced in Section 6. Which options would have produced the most good and the least harm, and which options would be considered right and appropriate acts considering accepted rules and principles, and which best fulfil a duty to others? 1. Confront Jay Consequentialism This is a high risk strategy could expose Ali to conflict and recriminations. Jay may retaliate by using his authority through his mother to threaten Ali, possibly leading to her dismissal. Ali could also be in legal difficulties if she accused Jay directly of fraud under laws of defamation. She might also be putting herself at risk of being bribed. Duty to Others Could be seen as an irresponsible, confrontational approach and unfair to Jay. 2. Discuss with her father Consequentialism This option breaches confidentiality and she may not get objective advice given the familiarity between herself and her father and between him and the owner. She may even face intimidation threats to act in a certain way for the same reason. Duty to Others Could be seen as an indecisive act and breaches confidence, possibly not fulfilling a professional duty to investigate the matter further or a lack of moral courage to confront the owner or the suspect themselves directly. 3. Discuss suspicions with Sam Consequentialism This could go either way. It may be that Sam would listen and be sympathetic to Alis

suspicions and attempt to address this matter and agree to discipline or report Jay or she could turn against her, putting her position in the company at risk and threatening her postion to act objectively as a professional. This approach would be considered as risky, because Sams reactions could not be predicted with any certainty. Duty to Others May be seen as her duty to the owner and also the most honest and direct approach to tell her manager, the owner, about her suspicions, but only if she did so diplomatically, through noting the potential opportunity Jay had for committing fraud. 4. Discuss tightening up of internal controls with Sam Consequentialism This approach will at least help to prevent any opportunity for internal control problems in the future, but by not investigating a possible crime, Ali is potentially allowing a guilty person to avoid conviction and to profit from their dishonesty. This option could also highlight to her employer that she had introduced weak internal financial control systems in the first place and she could be disciplined which could present problems for her personally and professionally. Duty to Others May be regarded as her duty as a professional to ensure that internal controls should be effective. Under the fundamental principle of professional competence and due care, Ali should try and rectify the internal control situation as soon as practically possible. 5. Consult professional body Consequentialism Ali could be well advised to do this, but this is only a starting point to resolving this matter. She may get some guidance, but will eventually have to make up her own mind about how to proceed. Duty to Others Would be seen as a sensible and responsible act as a starting point to resolving this dilemma and would allow Ali to gain a third partys expert opinion to help her with the dilemma. 6. Investigate potential fraud Consequentialism This is a fairly decisive option and may well be necessary to try and establish or rule out fraud. However, it may be difficult to obtain sufficient proof and may lead to Jay discovering that he is under suspicion and could lead to a potential conflict between Ali, Sam and Jay. Duty to Others

This may be seen as a duty under law and an appropriate course of action if it were likely that sufficient proof could be obtained. The option could be considered intrusive and vindictive to a potentially innocent person, particularly as it is inevitable that Charlie would be aware of any investigations into Jay by Ali. 7. Investigate reasons for increase in shop takings in gross profit margin Consequentialism Alis professional competence and due care might have led her to suspect that money laundering was taking place, because the most significant changes in business trading patterns were at the shop, not in the sales office, so eliminating this possibility would be the most logical starting point. Eliminating the possibility of money laundering at the shop first of all, would also give greater grounds for suspecting fraud at the sales office and more justification to investigate. Such an internal audit investigation by Ali would need to be handled very sensitively to avoid any potential damage to the relationship between herself, Jay and Sam, which may ultimately threaten her future at the company. Duty to Others This may be seen as a responsible act if it were likely that sufficient information could be obtained to take further action. The option could be considered intrusive and controversial in such a small organisation and may be considered disloyal to the employer and owner of the business. 8. Report to Police Consequentialism As an initial option, unless this information was handled appropriately by the police, this could lead to disruptive and unnecessary police investigations and may cause unnecessary recriminations and damage to relationships at Ashley Copper Company. Duty to Others Without sufficient grounds for suspicion this act would be considered to lack objectivity and could be perceived as impulsive, irresponsible and in some cultures as betraying the trust of the employer. 9. Wait a few weeks before acting Consequentialism This option would bring least harm to Ali or Jay in the short term and may prevent conflict within the business, but would most likely lead to continued fraud and / or money laundering in the future, threatening professional competence and due care and could also lead to serious charges being made by the police, possibly involving Ali herself. Duty to Others

Doing nothing or delaying decisions unnecessarily is rarely seen as virtuous and is usually seen as an abdication of duty and as a sign of weakness.