Ethical Obligations and Decision Making in Accounting, 4/e 1
Case 3-4 Franklin Industries’ Whistleblowing (a GVV case)
Natalie got the call she had been waiting for over six long months. Her complaint to the human
resources department of Franklin Industries had been dismissed. It was HR’s conclusion that she
was not retaliated against for reporting an alleged embezzlement by the Accounting Department
manager. In fact, HR ruled there was no embezzlement at all. Natalie had been demoted from
outside company no one had never heard of before. The staff had uncovered over $5 million
payments, authorized by King, to Vic Construction. No one could find any documentation about
Vic so the staff dug deeper and discovered that the owner of Vic Construction was Victoria
King. Further examination determined that Victoria King and Denny King were sisters.
Once Natalie was convinced there was more to it than meets the eye, she informed the internal
As it turned out, Roger cautioned Natalie about taking the matter any further. He had worked for
Franklin a lot longer than Natalie and knew the board of directors consisted mostly of insider
directors. The CEO of Franklin was also the chair of the board. It was well known in the
company that whatever the CEO wanted to do, the board rubber-stamped it.
Questions
Ethical Obligations and Decision Making in Accounting, 4/e 2
Assume you are in Natalie’s position. Answer the following questions.
1. Consider the following assuming you have decided to act on your values:
o What are the main arguments you are trying to counter. That is, what are
the reasons and rationalizations you need to address?
o What is at stake for the key parties, including those who disagree with you?
o What levers can you use to influence those who disagree with you?
o What is your most powerful and persuasive response to the reasons and
rationalizations you need to address? To whom should the argument be
made? When and in what context?
Natalie has reported the suspected fraud to the controller and HR, now she is faced with
the issue of whether she should go on up the chain of command to the CFO, CEO, the
audit committee and the board of directors. She is trying to counter the argument that
there is no fraud or embezzlement by the accounting department manager. The
rationalization would be standard operating practice and locus of loyalty to the
organization.
The Accounting Department manager has the most at stake as he stands accused of
embezzlement by Natalie. He could lose his job and be prosecuted for his offense. Natalie
is the protagonist in the case and the one with the ethical dilemma. She was demoted after
lodging a complaint with the controller about the embezzlement. She has lost her
retaliation complaint and now has to decide what her options are. She should consider
resigning her position to maintain integrity. The company’s future is at stake as the
financial statements contain an asset misappropriation. Denny King is in big trouble as he
Ethical Obligations and Decision Making in Accounting, 4/e 3
2. Assume you decide not to follow the script outlined in question 1 to bring the matter
to the attention of others in the organization for fear of being fired. Do you think
you have sufficient standing to file a whistleblower claim with the SEC under the
Dodd-Frank Act? Explain.
Natalie would be entitled to become a Dodd-Frank whistleblower if the disclosure to the
SEC is needed to prevent “substantial injury” to the financial interest of an entity or its
investors ($5 million fraud and cover-up could be substantial injury to investors); Natalie
reasonably believes that the entity is impeding investigation of the misconduct (entity
does not believe that there is a fraud so it is hard to know if it is impeding by destroying