Lee Garrett sells security systems for Guardsman Security Co. Garrett has a monthly sales quota of $40,000. If Garrett exceeds this quota, he is awarded a bonus. In measuring the quota, a sale is credited to the salesperson when a customer signs a contract for installation of a security system. Through the 25th of the current month, Garrett has sold $30,000 in security systems.
Vortex Co., a business rumored to be on the verge of bankruptcy, contacted Garrett on the 26th of the month about having a security system installed. Garret estimates that the contract would yield about $14,000 worth of business for Guardsman Security Co. In addition, this contract would be large enough to put Garrett “over the top” for a bonus in the current month. However, Garrett is concerned that Vortex Co. will not be able to make the contract payment after the security system is installed. In fact, Garrett has heard rumors that a competing security services company refused to install a system for Vortex Co. because of these concerns.
Upon further consideration, Garrett concluded that his job is to sell security systems and that it’s someone else’s problem to collect the resulting accounts receivable. Thus, Garrett wrote the contract with Vortex Co. and received a bonus for the month.
1. Discuss whether Lee Garrett was acting in an ethical manner.
2. How might Guardsman Security Co. use internal controls to prevent this scenario from occurring?