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Wi-Fi Security: “We Spy for U”
In 2006 the start-up company, “We Spy for U,” located in the Research Triangle
Park in North Carolina, developed a Wi-Fi security system that prevents unauthorized
users from hacking into a computer laptop as long as the system is activated. The system
became an overnight success but certain accounting issues have created a barrier to going
forward with more advanced systems. Exhibit 1 presents background information on the
evolution of Internet connectivity leading up to Wi-Fi.
Problems with Wi-Fi Access
No doubt we have moved from the information age to the connectivity age. The
information is, of course, still out there and some cities have been going completely
wireless. However, wireless access and security opens up a whole new area for ethics,
legal boundaries and responsibilities.
The convenience of going to wireless technology has made life easier for high-
tech criminals because it provides near anonymity. Each online connection generates an
Internet Protocol Address, a unique set of numbers that can be traced back to a house or
business.
That's still the case with Wi-Fi but if criminals tap into a network, their actions
would lead to the owner of that network. Anything a criminal does can be traced back to
the owner’s address and investigated. By the time authorities show up to investigate, the
hacker would probably be long gone.
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Some contend that the person who opened up access to the hacker is unlikely even
to know, let alone mind, that someone else has used it. If that person does object, the
answer is to use the password protection built into the wireless setup.
Security Certifications
We Spy for U created security certifications for Wi-Fi systems. The current
generation of security system was developed as an intermediary step towards enhanced
security measures. Since 2009, We Spy for U has been working on the next generation
of security support for Wi-Fi to stay one step ahead of hackers and the spoofers.
However, the company needs additional financing to continue with research and
development of new state-of-the-art security systems.
Accounting Issues
We Spy for U has relied on venture capital funding during its start-up years, 2007
through 2009. In 2010, the company exhausted all funds available and started to apply
for a loan at a bank in North Carolina. The banks in general were skeptical about why the
venture capitalists stopped funding We Spy for U, but one bank was willing to look at the
financial statements prepared by management for the years ending on December 31,
2007, 2008, and 2009, and then make a funding decision.
The financials were already prepared by Bella Lagoosi, the chief accounting
officer of We Spy for U. Lagoosi is a CPA and CMA. When Lagoosi presented them to
Horace Frankenstone, the CEO of We Spy for U, Frankenstone protested. Here’s how the
conversation went between Lagoosi and Frankenstone.
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“Forget it, Bella, Frankenstone said. “If we show $10 million due to the venture
capitalists in our short-term payables, the bank won’t lend us the money. Our current
ratio will be .8:1.”
“It is what it is,” responded Lagoosi. “I can’t change the numbers.”
“You can and you will. If you put the payables into the long-term category, then
our current ratio will be 1.33:1. That should clinch the loan from First Weirdoo Bank &
Trust.”
“What if they ask for loan documentation and see that the loan is due on June 30,
2007,” Lagoosi asked.
“Let me worry about the bankers,” Frankenstone responded. “I can tap dance
around the issue.”
Bella Lagoosi considered himself to be an ethical person. He knew what
Frankenstone asked him to do was wrong. However, he also knew that it wouldn’t be
changing the overall liability numbers, there would be no effect on net income, and
probably no one would be the wiser. Lagoosi thought to himself, who would get hurt
with this one change?
The case has the students deal with a request for the chief accounting officer to
subordinate his judgment and window dress the financial statements so that the firm can
obtaining a bank loan.
Ethical Issues
The ethical viewpoints on classifying a short term liability as a long term liability are
discussed through the two questions. This case addresses window dressing and
subordination of judgment. The transparency of motives addresses the issue of
appearance driving decisions instead of sound finance driving the reporting. Bella and the
students should consider what rationalizations might be used in this case and the effect on
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a slippery slope. Bella and the students should consider whether Bella should blow the
whistle, how and the effect of confidentiality on that decision.
Questions
1. The case starts out by pointing out the new “ethical issues and
responsibilities” created by the wireless phenomenon and security matters.
Describe those issues using virtue, values, and the ethical reasoning models
discussed in previous chapters.
From a virtue perspective, the values of trustworthiness, respect, responsibility and
fairness are threatened or could be compromised by the wireless phenomenon. From
the consequences perspective, the unauthorized “hot spotting” is theft but costs the
victim almost nothing. From a rights perspective, wireless requires the respect for
2. Refer to the ten-step ethical decision making model and analyze the
alternatives available to Bella Lagoosi, and which one you would
recommend. You do not have to address the operating issues. Be sure to
address provisions of relevant professional accounting codes in deciding upon
a course of action.
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1. Frame the ethical issue.
2. Gather all the facts.
It is 2007 and the note due date is June 30, 2007. The classification of the note payable
for the 2006 financials is under discussion. If it is classified as short term, the current
3. Identify the stakeholders and obligations.
The stakeholders include the bank, venture capitalists, owners, Wi-Fi, officers,
4. List the relevant core values involved in the situation.
5. Identify the operational issues.
The operating issues are the lack of cash to keep the company running and how to handle
6. Identify the accounting issues.
7. List all the possible alternatives of what you can or cannot do.
Bella can refuse to reclassify the loan. He could be fired or resign with this option.
Bella could wait and see if the bank notices the change in the loan due date; if the bank
notices, act as just discovered mistake.
Bella could tell the truth to the bank and hope the loan is funded anyway.
8. Make an ethical analysis of the alternatives.
The ethical viewpoints on classifying a short term liability as a long term liability are
discussed through the two questions. This case addresses window dressing and
subordination of judgment. The transparency of motives addresses the issue of
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9. Decide on a course of action.
10. Reflect on your decision.
Exhibit 1
Background Information
The various forms of Internet connectivity have evolved over a short period of
time as follows.
Dial Up Internet
Once the world standard for Internet network connections, dial up is slowly being
replaced with higher-speed options. Dial up uses ordinary telephone lines but, unlike
more sophisticated systems such as DSL, dial up connections occur over telephone wires
so they prevent simultaneous voice calls.
DSL - Digital Subscriber Line
DSL is one of the most prevalent forms of Internet connection today. DSL provides high-
speed networking over ordinary phone lines using digital modems. DSL connection
sharing can be easily achieved with either wired or wireless and the user can still receive
incoming phone calls over conventional phone lines.
Cable - Cable Modem Internet
Like DSL, cable modem is a form of broadband Internet connection. Cable uses
neighborhood cable television conduits, rather than telephone lines, but the same
broadband routers that share DSL Internet connections also work with cable.
Satellite Internet
A few enterprises offer satellite Internet service. With an exterior-mounted mini-dish and
a proprietary digital modem inside the home, Internet connections can be established over
a satellite link similar to satellite television services.
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Satellite Internet can be particularly troublesome to a network. Satellite modems may not
work with broadband routers, and some online services and online games may not
function over satellite connections.
BPL - Broadband over Power Line
BPL supports Internet connections over residential power lines. The technology behind
power line BPL works the same as phone line DSL, using unused signaling space on the
wire to transmit the Internet traffic. However, BPL is a controversial Internet connection
method. BPL signals generate significant interference in the vicinity of power lines,
affecting other licensed radio transmissions. BPL requires specialized (but not expensive)
equipment to join to a home network.
Wireless Broadband Internet
The current rage, wireless fidelity, or Wi-Fi technology, supports high-speed wireless
Internet via base stations like cellular networks. So-called Wi-Fi community or "mesh"
networks serve a similar function using different technologies. One notable problem
with Wi-Fi systems is the possibility that another laptop user might hack into your
wireless Internet network. The good news is that wireless mooching is easily preventable
by turning on encryption or requiring passwords. The problem, security experts say, is
many people do not take the time or they are unsure how to secure their wireless access
from intruders.
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