After graduating from a local college, Julian Torres, an accountant at Kundera Healthcare Supplies, started

working for the small medical supply distributor based out of western Massachusetts in January Kundera,

a locally owned family business, has an excellent reputation for caring, knowledgeable sales consultants and a

wide variety of inventory in its four stores. Most of the companys revenue is generated from sales of durable

medical equipment DME including hospital beds, wheelchairs, and prosthetics. Kundera purchases most of

its DME from a few vendors, and its customers are mainly individual patients who receive reimbursement from

healthcare insurers.

Kunderas top management strongly supports the budget process to establish financial goals and evaluate ongoing

performance. The annual budget incorporates standard costs for medical supplies. At month end, Julian prepares

a flexible budget report to identify differences between flexible budgeted costs and actual costs. Julian conducts

a preliminary analysis of any significant differences before sending his report and findings to his supervisor,

Shanice Johnson, the controller. At the end of each month, Shanice and chief financial officer Kevin Ho compare

monthly results to the flexible budget with Kunderas executive committee.

THE FLEXIBLE BUDGET REPORT: SIGNIFICANT DIFFERENCES

In August, Julian observed that the actual cost of DME products purchased was higher than the flexible

budget amount. He compared the purchasing departments August data to prior periods and noticed increasingly

unfavorable cost variances beginning several months ago. The differences were initially minor but had been

rising in small increments until this months spike. Theres probably an explanation, Julian thought. Thesupply chain issues Ive been hearing about might be causing our vendors to increase their prices Julian asked his friend Evan Wallace about the cost increase. Evan began working as a clerk in the purchasing

department a few months before Julian started at the company. When Evan was unable to locate supporting

documentation, Julian wondered aloud: Its strange that the price change isnt supported by some kind of

vendor communicationnot even an email?

Eventually, Evan confided that Irene Saunders, director of purchasing, might be accepting bribes and other

kickbacks from a new DME supplier. I heard her on a call and put together that there might be an arrangement:

Irene makes sure that Kundera approves the vendors prices, and, in exchange, Irene gets paid under the table. I

guess that could be why the invoice amount is inflatedbecause the vendor is taking care of Irene.

Julian took this inWait he said, so shes personally benefiting from this? Wouldnt that be stealing from the

company, and shouldnt we let someone know?

Evan became upset. Look you cant tell a soul. I could get fired given Irenes status around here. Anyway, I

havent worked here long, so Im probably just misunderstanding something.

Irene has been a valued employee of Kundera for more than years. She became a purchasing clerk after

high school, receiving several promotions over the years to become director of purchasing. Since high school,

Irene has been a good friend of Tereza Kundera, vice president for operations, and a member of the executive

committee. Julian suddenly remembered a conversation he overheard while visiting the purchasing office a few

weeks ago. Tereza had stopped by and was teasing Irene about the elaborate arrangements for Irenes daughters

wedding. Tereza laughed goodnaturedly and said, No doubt you and your husband will be paying this off until

the day you die, but I certainly look forward to attending.

THE DECISION

Julian returned to his desk and reflected on his conversation with Evan. He was concerned about the misconduct

that might be taking place at his organization. At the same time, he would feel terrible if he brought on any

negative consequences for Evan or jeopardized their close friendship. The term ethical dilemma came to mind.

He remembered a class he took during his undergraduate studies in which the professor discussed how the IMA

Statement of Ethical Professional Practice could help provide guidance when facing difficult ethical decisions.

He found the IMA Statement and reread it in full.

Put yourself in Julians shoes. What should he do next? Use the IMA Statement as a framework to understand the

ethical dilemma and determine your course of action

Who are the stakeholders in this situation? Which stakeholders does this directly affect?

Describe Julians ethical dilemma.

Reference your copy of the IMA Statement of Ethical Professional Practice, which describes standards of Competence, Confidentiality, Integrity, and Credibility. Which combination of standards best applies to Julians case?

List the choices Julian has in this ethical dilemma, including doing nothing. Indicate which choic

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