Case 3-6
Bennie and the Jets
Bennie Gordon is a CPA and a member of the AICPA. Gordon works as an accounting manager at the
division level at Jet Energy Company, a publicly-owned company headquartered in South Carolina. Jet
Energy is a regulated utility company by the state and provides electricity to 7 million customers in
southern states. Jet Energy is allowed a rate of return on operating income at a maximum rate of 12.5
percent on electricity it sells. If the company is earning more than that, regulators can cut the rate it charges
to customers.
Gordon reports to Sarah Higgins, the controller of the division. Higgins holds the Certificate in
Management Accounting (CMA) and is a member of the IMA. Higgins reports to Sam Thornton, the chief
financial officer, who is also a CPA. Thornton reports to Vanessa Jones, the CEO of the company. Joan
Franks is the chief compliance officer. The company has an audit committee of three members, all of whom
sit on the board of directors.
Gordon has identified irregular accounting entries dealing with the reclassification of some accounting
items to make its returns lower so state regulators would not cut rates. One example is that Jet Energy often
gets rebates from insurers of its nuclear plants based on safety records. Although the cost of the premiums
is expensed to the electricity business, the rebates – approximately $26 million to $30.5 million each – were
not booked back to the same accounts. On a number of occasions, they were booked below operating
income in a nonelectric account. The moves kept Jet Energy from exceeding its allowable returns and kept
the states from reducing electricity rates.
After two years of being silent, Gordon decided it was time to address the issue.
Questions
1. What steps should Bennie Gordon take to ensure that the accounting matter is adequately
addressed by the company? Why do you suggest those steps be taken? What are the ethical
obligations of Bennie Gordon, Sarah Higgins, and Sam Thornton?
Gordon should discuss the situation with his boss, Higgins. He should do research on the correct
accounting and disclosure requirements under GAAP and regulations for utility companies in South
Carolina, and others states served by Jet Energy. He should document his findings and suggested adjusting
Gordon, Higgins, and Thornton all have an obligation to ensure that the financial statements are accurate
2. Assume Gordon made a strong case that the accounting did not comply with GAAP but his
superiors said that the decisions already made were final. They never offered an explanation.
What would you do next if you were Bennie Gordon? Would you blow the whistle and, if so,
how would you do it? Explain your answer in terms of ethical reasoning.
Gordon should take the matter up the internal chain of command to Jones, the CEO, and Franks, the chief
compliance officer. If the management still refuses to change the accounting, then Gordon should take the
Ethical Analysis
Rights Theory: It is not right to mislead current and potential investors, customers or the regulators by
Utilitarian Theory: The stakeholders of the investors, customers, and regulators are harmed by not
following GAAP with respect to classifying the rebates. Only the top management seems to benefit from