Cost Accounting only question 1 2 and 4 INTRODUCTION Matador Materials, a public company, became an industry leader in the United States supplying const

only question 1 2 and 4


Matador Materials, a public company, became an industry

leader in the United States supplying construction and

heavy building materials and through numerous acquisitions.

Matador followed a decentralized operating philosophy,

which allowed facilities to operate as autonomous profit

centers. Facility managers reported directly to the vice

president of operations at the main corporate office and

were given broad decision-making authority over facility

expenditures with minimal, if any, oversight. If the facility

was generating a profit, little attention was paid to the

facility manager’s decisions. Matador followed a “don’t ask

don’t tell” philosophy, which allowed facility managers to

do whatever necessary to achieve the company’s financial

objectives. Corporate executives realized their philosophy

encouraged questionable business practices bordering on

unethical—or worse, illegal—but rationalized their actions

as being consistent with industry practices. Consistent with

the company’s code of ethics, a confidential ethics hotline

was established for employees to report suspected unethical

or illegal behavior. Within the company, it was common

knowledge that calling the ethics hotline would not end well

for the employee.


After completing her accounting degree and passing the

CMA® (Certified Management Accountant) examination,

Teresa was excited about her first accounting job as the

accounting manager at Matador Materials, the largest

employer in her rural hometown of Hope, GA. Since

graduating from high school, Teresa stayed in Hope to

raise her now 10-year-old daughter. Teresa was the third

generation from her family to work for Matador Materials

but the first to work in the office. Her grandfather, father,

and brother had loaded and unloaded building materials. On

her first day, Teresa mused, “This is best accounting job in

Hope. I am so blessed to work here and raise my daughter

near family and friends.”


In the past, the Hope facility consistently outperformed

other facilities, with corporate executives hailing it and its

facility manager Sam as models for others to emulate. All that

changed a year ago, though, when a competitor opened a

new facility in Hope. This resulted in dramatic decreases in

sales and increases in costs, with the Hope facility reporting

a loss for the first time ever. Executives who once praised

the Hope facility now requested a complete review of the

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ISSN 1940-204X

Higher Degrees of an Ethical Dilemma

Robert Rankin

Department of Accounting

Texas A&M Commerce

© 2 0 1 8 I M A

Trish Driskill

Department of Accounting and Business Law

University of the Incarnate Word

facility’s financial results. They charged Pat, the former Hope

accounting manager who was recently promoted to divisional

controller, with the task. As expected, Pat discovered a

significant decrease in sales driven by lower selling prices and

increased operational costs driven by inefficient operations.

Pat was puzzled by the extraordinary increase in the facility’s

administration expenses. Pat knew Sam approved those

expenditures with the source documents retained locally at

Hope, so he asked Teresa to investigate.


Teresa realized this investigation could jumpstart her career.

While Teresa reported directly to Pat at the corporate office,

she felt a deep sense of obligation to Sam at Hope. She

reasoned, “If I do a good job at the Hope facility, when

Pat retires in the next five years, I could become the next

divisional controller.”

Analyzing the details of the administration expenses,

Teresa uncovered significant increases in overtime and

tuition reimbursement costs in the general administration

and human resources departments. Confident she had the

necessary skills to uncover the root cause of the increase, her

first stop was the payroll department.

“Good morning, Mary,” Teresa said to her payroll

clerk. “I need your help. Would you please pull last year’s

timecards for Sam’s administrative assistant, Tia, and the

switchboard operator, Tamara, and all of the human resource


“No problem, Teresa. It might take me a little bit. Can I

get them to you after lunch?”

“Sure. Mary, is there anything unique about these


“Funny you should ask. These are the only departments

in the entire facility that submit their timecards in Excel.

All the other departments use the company’s time system,”

Mary said.

“I suspect that was something Pat set up years ago for

convenience. I will get him to clarify. Please make this a

priority. This is my first major project for Pat and Sam,”

Teresa said.

Mary said, “Consider it done. We are excited to have you

as part of our team.”

From payroll, Teresa next visited with the accounts

payable clerk to review the tuition reimbursement source

documents. The company recently began offering tuition

reimbursement (company-paid tuition) to encourage

employees to further their education.

“Annette, I need your help. I am reviewing tuition

reimbursement expenses for a project for Pat and Sam.

Would you please pull the source documents supporting

those expenditures?” Teresa asked.

“Sure, that is easy. Normally I file all of those together,

so when the continuous improvement manager from

corporate audits our files, I do not have to pull them for each

university. Here you go.”

“Thanks. One more question. Which departments take

full advantage of the tuition reimbursement?”

“If memory serves, the general administration and human

resource departments have over the last couple of years, but

I am not 100% certain.”


Teresa decided to review the tuition reimbursement source

documents first. She discovered Annette was correct; the

general administration and human resources departments

used the benefit extensively. In the last year, Tia and Tamara

were reimbursed $20,000 each. Angel, the human resources

manager, and Marty, the human resources clerk, received

payments of $35,000 combined. The invoices appeared to be

from bona fide universities all approved by Sam. Although

the dollars spent were abnormally high, the supporting

source documents justified the expenses.

Turning her attention to the timecards, Teresa was not

surprised to find that Tia, Tamara, and Marty were the only

administrative employees who submitted their timecards in

Excel. As with the tuition reimbursement source documents,

everything was in order and approved by Sam or Angel.

There was, however, something out of the ordinary about

their time: all three reported 70 hours worked per week for

more than a year. Teresa knew something was not right and

decided to discuss her findings with Pat.


“Pat, sorry for calling so late. I just completed my analysis of

the administration expenses. If you have a moment, I would

like to discuss my findings,” Teresa said hesitantly.

“What did you find?” Pat asked.

“The two drivers for the increased administration

expenses are overtime and tuition reimbursement in the

facility administration and human resources departments.

In previous years, neither department had any significant

overtime and no tuition reimbursement costs. For

the current year, overtime pay is $50,000 with tuition

reimbursement of $75,000.”

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Pat asked a little puzzled, “Did you review the source


“Absolutely. Sam approved all of the expenses. What I

found a bit curious was that Tia, Tamara, and Marty used

Excel to submit their time, which averaged 70 hours per

week for more than a year. Coincidently, besides Angel, they

were the only employees to request tuition reimbursement.”

“Great. Thanks for your thorough analysis,” Pat said.

“It seems the overtime and tuition reimbursement costs

are related. When you were at Hope, did you or Sam make

any special accommodations for employees taking classes?

I am curious if you approved overtime pay for employees

taking online classes as long as they did their course work at

the office,” Teresa suggested hopefully.

“Teresa, I did not make any such arrangement and am

certain neither did Sam. I am confident Sam is in complete

control of all of the expenditures at Hope. I hope you are not

suggesting that Sam gave preferential treatment to the facility

administration and human resource departments or, worse,

committed some type of fraud. During my 10 years at the

Hope facility, Sam would not tolerate anyone bending much

less breaking the rules,” Pat commented, clearly agitated.

“Your line of inquiry is unfounded. If you persist in pressing

the issue, your tenure with our company may be short.”


Teresa remained unsettled by Pat’s warning. Even though

she reported directly to Pat, her loyalties were to her

profession and to Sam and the management team at the

Hope facility. She felt compelled to resolve the issue. Even

though Sam and Pat shared a close working relationship

and friendship for several years, Teresa could not help

but wonder if Pat was protecting his former colleague or

someone else at Hope. She had to know. Ignoring her boss’

warning, Teresa arranged a meeting with Sam.

“Sam, it surely has been a long couple of months.

No matter what we do, it seems we cannot return to

profitability,” Teresa said.

“It surely has,” Sam agreed. “We are most definitely

feeling the pressure from our competition. Some of our most

experienced workers resigned in favor of the competition,

which has adversely affected our financial results. But that is

old news to you. You asked for this meeting. What is up?”

“I am not certain if you are aware that Pat asked me to

analyze our financial results for last year,” Teresa explained.

“I found the obvious decreases in sales and increases in

operating costs. One thing I discovered that I did not expect

was a doubling of our administration costs year-over-year.”

“That’s incredible. I suspect the accounting department

is the culprit. With Pat leaving, I would expect overtime

costs increased during the transition,” Sam said.

“Surprisingly, the accounting department expenses are flat.

The cost increases are actually in the facility administration

and human resources departments,” Teresa interjected.

A little annoyed, Sam exclaimed, “That cannot be right.

We have not hired anybody new in more than a year. In fact,

we have been working to reduce our costs.”

“That is exactly what I thought. When I dug deeper, I

found significant increases in tuition reimbursement and

overtime costs. Tuition reimbursement costs are up because

Tia and Tamara in your department, as well as Marty and

Angel in human resources, started taking classes. For the

past year, Tia, Tamara, and Marty worked an average of 70

hours per week. Here are the source documents for tuition

reimbursement and their timecards all with your signature,”

Teresa indicated as she handed the documentation to Sam.

“I knew they went back to school, but I was not

aware of the overtime hours. I did approve their tuition

reimbursement and time, so they must be correct,” a now

agitated Sam said.

Teresa pressed, “Sam, are you sure? Are these really your


“Yes. They are my signatures,” an almost furious Sam

countered. “I approve ALL expenditures at this facility and

do an excellent job of it. I do not appreciate what you are

implying. If I were you, I would be careful about making

any accusations. I have known these people for more than

10 years. We go to church together, and our kids play on the

same soccer team. Teresa, you are out of line here. When

Pat hired you over my objection, there were several more

qualified candidates. You have only been at our facility for

three months. If you are not careful, you might not make your

fourth. I am in charge here. This conversation is over. Leave

your source documents with me, and I will get the issue

resolved. You are not to mention this again. Understood?”

Barely audible, Teresa answered, “Understood.”


1. As a CMA, Teresa is governed by the IMA® (Institute

of Management Accountants) Statement of Ethical

Professional Practice. What are Teresa’s ethical

responsibilities under IMA’s standards?

2. Describe how Teresa can follow the steps of ethical

conduct resolution detailed in the IMA Statement.

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3. Pat is also a CMA. Evaluate which of IMA’s standards

Pat may have violated. What are the repercussions of

violating IMA’s ethical standards?

4. Who are the stakeholders in the case?

5. Evaluate Teresa’s potential responses to this ethical

dilemma and the advantages and disadvantages of each.

6. If Teresa elects to escalate the situation, what safeguards

are in place to protect her from repercussions in the


7. What did you learn from this case?

8. What factors would Teresa consider when deciding to

become a whistleblower or investigate further?

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IMA®, the association of accountants and financial
professionals in business, is one of the largest and most
respected associations focused exclusively on advancing the
management accounting profession. Globally, IMA supports
the profession through research, the CMA® (Certified
Management Accountant) program, continuing education,
networking and advocacy of the highest ethical business
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members in 140 countries and 300 professional and student
chapters. Headquartered in Montvale, N.J., USA, IMA
provides localized services through its four global regions:
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For more information about IMA, please visit

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