During 1991 and 1992, the federal government also launched investigations into the overhead costs at numerous universities, including Syracuse, Massachusetts Institute of Technology, PennsylvaniaState, Harvard Medical School, Carnegie Mellon, Duke, Johns Hopkins, and Pittsburgh. Government auditors claimed that universities had overcharged the government for indirect research costs.
Accountants often view it as part of their job to help their organizations succeed. Often, this assistance means developing strategies to maximize the organization’s cash flows. For example, accountants promote income tax strategies to help companies minimize income tax payments. Similarly, accountants might promote strategies to maximize reimbursements under cost-based contracts. This type of strategy might encourage accountants to include a cost in an indirect cost pool when there is uncertainty about whether it is allowed.

The following questions will help you analyze the information for this problem. Do not turn in your answers to these questions unless your professor asks you to do so.
A. Explain why accountants must often use judgment to decide whether a particular cost is reimbursable under a cost-based contract.
B. Discuss whether maximizing reimbursements under cost-based contracts is an ethical issue for accountants.
C. In the Stanford case, the total repayment of $2.2 million was small in relation to the total
$734 million in indirect costs the university had received from the government. Is your answer to part (B) affected by the size of a potential overcharge? Why or why not?
D. Identify the major groups of stakeholders for this problem. From the perspective of each major stakeholder group, discuss the pros and cons when accountants help their organizations maximize reimbursements under cost-based contracts.
E. What trade-offs must accountants make when deciding whether to help their organizations maximize reimbursements under cost-based contracts?

Turn in your answer to the following.
F. Use the information you learned from the preceding analyses to help you write an essay in response to the following question: Is it ethical for accountants to help their organizations maximize reimbursements under cost-based contracts?

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