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Case 3-2 Rite Aid Inventory Surplus Fraud
a $29.1 million dollar surplus inventory sales/kickback scheme. Another former Vice President,
Timothy P. Foster, pleaded guilty to the same charges and making false statements to the
authorities. Both charges are punishable by up to five years’ imprisonment and a $250,000 fine.
The charges relate to a nine-year conspiracy to defraud Rite Aid by lying to the company about
the $29.1 million to Foster.
Foster admitted his role during the guilty plea stage of the trial. He voluntarily surrendered $2.9
million in cash he had received from Findling over the life of the conspiracy. Foster had stored
the cash in three 5 gallon paint containers in his Phoenix, Arizona garage.
Questions
1. What steps must you take to be eligible to blow the whistle to the SEC under the
Dodd-Frank Financial Reform Act?
As director of internal auditing at Rite Aid, internal accountants are eligible to become
Dodd-Frank whistleblowers in three situations: (1) Disclosure to the SEC is needed to
prevent “substantial injury” to the financial interest of an entity or its investors; (2) the
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2. Would you inform the external auditors about the fraud? Explain.
Students may take different positions. Many may think that it is easy to whistle blow,
particularly when one is sitting in classroom with no job on the line. Others may be more
reserved and say that there will be others more knowledgeable than me that will be blowing
the whistle, a bystander effect reaction. In a sense this is what Betty Vinson did when she
3. Assume you met all the requirements to blow the whistle under Dodd-Frank. Would
you do so? Why or why not?
Again students may answer in different ways. Ask the students if they would whistle-
blow in such a situation, if there was no reward under Dodd-Frank? Let’s hope that
many would want to blow the whistle as it is the right thing to do and the material
misrepresentation in the financial statements must be corrected. Emphasize that the
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