The Davenport Dilemma

    Sue Davenport, Human Resources Director stared out of her office window and contemplated her future. Her thoughts were on her position in the company and her need to support her family of four children. As a sole parent she feels her options are limited. Her dilemma began just a few weeks ago. She had learned from Robert Drew, the internal auditor, that an employee had reported to him possible expense account abuses by one of the company’s most senior managers. Robert said that this employee had accompanied Dan Murphy, a senior vice-president, on many business trips. The employee said Murphy had some curious habits: When getting out of a taxi, he would ask for extra blank receipts, and in restaurants, he would often do the same. Robert had followed up this tip. He examined Murphy’s travel file and found numerous irregularities: multiple receipts from the same taxi companies for the same days, extremely expensive meals, and duplicate meal receipts for the same days and other suspicious charges for several hundred dollars each billed to an unknown company. Robert has estimated he could safely document a minimum of $30,000 worth of phony charges over the last three years. When Robert told Sue Davenport what he had found, she said: “The guy makes over half a million a year in salary and yet he evidently is hitting us for at least $10,000 a year in completely fake expenses.” Davenport added, “And if we know he is defrauding the company for $10,000 a year, then what is he up to that we don’t know about?” The two executives decided they would completely document Murphy’s abuses and notify the CEO. However, as internal auditor, Robert was concerned —and not without reason. “Look,” he said to Davenport, “Murphy outranks me. He and the CEO are very close friends. The CEO personally invited Murphy to join the company. This will look like I am whistle blowing on a valuable company executive, and the CEO won’t be happy with me.” But Davenport explained to Robert that when it came to high-ranking executives, there was no such thing as an “immaterial” fraud. Davenport knew their duty: They had to report Murphy’s conduct to the next highest level in the organization—in this case, the President and CEO and then disclose it to the Audit Committee. THE BAD NEWS BEARS The two executives met with the CEO, and Robert’s intuition about his reaction was correct. After hearing the presentation, the CEO erupted: “Murphy makes millions for this company, and you people are in here claiming he is hitting us for pocket money. Don’t you have anything better to do?” But, Davenport stuck to her guns. “I really hate that this has happened,” she said, “but my duty is very clear. Murphy is an executive in this organization, and management fraud can have very serious consequences. Managers must set a proper example. If Murphy can cheat on his expenses and get away with it then other people will try it too. If we know of this, others in the company are sure to know. And if you discipline one employee and not another, the company opens itself to risk and legal liability. Furthermore, a person in Murphy’s position controls millions of dollars in company assets. If he is dishonest about his expenses, what else is he dishonest about?” But the CEO wouldn’t listen. “I’m telling you,” he said, shaking his finger in the air, “drop this now and leave him alone. I’ve known Murphy for over 10 years. I recommended hiring both of you. I can just as easily recommend that you be replaced.” It was clear to Davenport the CEO was furious, so she felt it best to end the discussion for the time being. By the next day, the CEO had relented. He called Davenport and said: “I have thought this over. I even talked to my wife about it last night. Of course you are doing the right thing. I’m sorry I acted the way I did; it’s just that Murphy is such a valuable team member, and this thing is embarrassing for the company and me. I’ll go ahead and talk to the Chair of the Audit Committee. You can come with me.” They informed the Audit Committee and the Board of Directors of Murphy’s “petty” thefts. Most members were upset that they had to involve themselves in what they saw as such an insignificant matter. It finally was decided that three Audit Committee members would speak directly to Murphy. Murphy’s attitude was cavalier toward the Audit Committee. He pointed out the many hundreds of nights he had logged away from home on the company’s behalf. He readily admitted submitting inflated and duplicate expense reports, but he said the reason was that he didn’t keep track of all of the cash he spent on behalf of the company, and this was just a way of reimbursing himself. The Audit Committee backed down from any further confrontation with him. A WAY OUT To settle the matter, the Audit Committee Chair offered to strike a compromise with Davenport. Davenport’s division would be merged with the new Quality Assurance Division with enough additional staff to maintain control of personal expenditure of senior staff. Davenport would be appointed to head the new division with a substantial increase in salary. New internal controls would be implemented over executive travel and the company would send out an email to all employees informing them of the company’s Code of Ethics and also reminding them of expense account policies. Sue would have responsibility for writing new policies and procedures along with a new code of ethics if she saw the need. But then came the tough part of the compromise: The Audit Committee Chair told Davenport that it was in the company’s best interests to keep Murphy and that—notwithstanding Murphy’s indiscretions—he was a valuable company asset. Furthermore, the Board decided against punishing Murphy to make an example of him. Davenport argued that not disciplining Murphy would send the wrong message. The Chair countered that Murphy’s actions were not widely known and that morale would suffer more if he was disciplined than if the incident was glossed over. And Murphy had agreed to go forth and sin no more. Susan continued to gaze from her office window still full of doubt. She knew that Murphy’s behaviour was in breach of the company’s Code of Ethics. If one employee is aware of Murphy’s actions, there are bound to be more. As a member of the Australian Human Resources Institute (AHRI) she has a duty of care also to abide by their Code of Ethics. Then her family has to be considered. She cannot afford to lose her job. The new role offered to her will mean that she can work to ensure that this type of situation does not occur in the future. But then, is the offer of a new job with expanded responsibilities and authority unethical in itself? Sue pushed herself back from her desk deciding it was time to go home to think through her dilemma. She needs to give the CEO her decision within the next few days.     Discuss the problem statement and list its significant parts   What do you know to solve the problem? Develop, and write out, the problem statement