Budgeting: Ethical Issues

Using underlying concepts learned in the previous 4 modules, write a 5 – 8 page report providing the best analysis for the scenario below:
Joy Reed, a district manager, performance evaluation and reward is made on the basis of adhering to the confines of a flexible budget. Joy, the assistants, and operation managers are all eligible to receive a bonus if actual district net operating income is between budgeted net operating income and 130 per cent of the net operating income. The bonuses are based on a fixed percentage of actual net operating income. Net operating income greater than 130 per cent of budgeted net operating income earn a bonus at the 130 per cent level (in short, there is an upper limit on bonus payments). If actual net operating income is less than budgeted net operating income, no bonuses are awarded. Consider actions taken by Joy:
1. Joy overestimates expenses and underestimates revenues. This increases the chances of the district in reaching the budgeted net operating income. Joy believes the action is okay, because it increases the probability of receiving bonuses and helps keep the managers morale high.
2. Near fiscal year end, Joy sees the district will not achieve budgeted net operating income. So, she tells the sales group to defer the closing several sales agreements to the next fiscal year. She also wrote off inventory which was worthless. Deferring revenues to following year and writing off inventory in a no-bonus year increases the probability of a bonus for next year.
3. Make the assumption that towards the end of the year, Joy sees actual net operating income will exceed the 130 per cent limit and she takes actions similar to those described in Item b.
Although there are ethical issues to address, there are additional concerns impacted by ethical lapses in decision making, such as the budgeting and impact on the various parts of the organization, or the whole organization which should be discussed.
REQUIRED QUESTIONS:
• Discuss Joy’s ethical behavior; are her actions right or wrong?
• What role does the company play in enabling the actions taken by Joy?
• If you are the marketing manager for the district, and receive instructions to defer closing of sales until the next fiscal year, what would you do?
• If you are the operations manager, and know your budget has been padded by the district manager and the padding is common knowledge among other operations managers, who support it because it increases the probability of coming under budget and receiving a bonus, what would you do?
• If you are the district controller, and receive instructions from the district manager to accelerate the recognition of expenses which legitimately belong to a future period, what would you do?
Please review the SLOs mentioned below and synthesize
them into your research paper.
SLO1: Identify capital budgeting techniques examining their effects on corporate strategy of investment selection.
SLO2: Examine how investment value is measured with consideration of capital rationing for capital budgeting.
SLO3: Analyze processes in foreign investments.
SLO4: Evaluate basic risk adjustment techniques in capital budgeting
WRITING GUIDELINES:
• The length of this paper should be between 5-8 pages (not including the title page, table of contents or reference page)
• APA formatting, double spaced, with 1-inch margins and 12 point Times New Roman font.
• Your paper must have an INTRODUCTION and CONCLUSION paragraphs.
• Please include Title Page, Table of Contents Page, Reference Page, and Appendices page(if needed).
• Please submit in a word document and NOT pdf version.
• You should use headings and subheadings to organize your paper.
• Use at least 5 academic, scholarly or professional practitioner sources, and minimum 5 in-text CITATIONS are required.
• You must cite and reference all texts used, including page numbers to avoid plagiarism.
• Please provide verifiable links/web address for each academic reference used.
• Paper should be proofread for spelling and grammar mistakes
• Please review the SLOs mentioned above and synthesize them into your research paper.