David Welch, the CFO of Cardinal Bankshares Corp., noticed accounting discrepancies at the small Virginia bank. Welch believed he was protected under SOX to collect evidence as a whistleblower. However, there were no specific or definitive violations of federal securities laws. The document outlines an ethics case template to analyze Welch's situation, identifying stakeholders, ethical issues around duty of loyalty and business judgment, and alternatives for Welch to either remain loyal and fix the errors, or leave the company. It's decided Welch should have fixed the errors and had an external audit to ensure correct financial practices.
3. 1. Determine Facts
David Welch, a part time CPA, obtains the
position of CFO at a small Virginia bank called
Cardinal Bankshares Corp.
David Welch begins to notice discrepancies in
accounting practices and procedures. Welch
believes he is protected under the SOX Act and
begins to collects evidence for a whistleblower
case.
4. 2. Identify Stakeholders
David Welch (former CFO of Cardinal)
Ronald Leon Moore (CEO of Cardinal)
Cardinal Bankshares Corp.
5. 3. Identify Ethical Issues
Duty of Loyalty
– David Welch has a personal duty and responsibility to the
company to perform his accounting to the best of his ability
for the company. The discrepancies of the accounting
principals in which he found should have been handled by
him and re-checked with the external auditors in order to
solidify his loyalty to the company.
Liabilities of Directors and Officers
– As directors of the company David Welch and Ronald Leon
Moore would be held accountable for their actions as well as
employees under their direction. With that weight on their
shoulders it would be in their best interest to perform ethical
and legal business practices.
6. 3. Identify Ethical Issues
Business Judgement Rule
As CFO Welch should have implemented the Business
Judgement Rule. Welch could have directed employees under
his department to perform at his standards. Welch as a CFO
is a leader in the company. He should have taken control of
the reigns and fixed the issues at hand.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act was an ethical act created to
protect individuals such as David Welch in case there was
a legitimate corporate fraud scandal. However, since there
were no specific and definitive violations related to the
federal and security laws Welch should not have acted in
the manner he chose.
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7. 4. Specify Alternatives
Welch could remain loyal to his company and fix the
accounting errors.
Restrict financial records, direct lower level
employees to perform accounting according to GAAP.
Then check their work himself or use an external audit
firm.
Accept the fact the company was violating GAAP
principals and do nothing.
Have the external auditors review the financial
statements.
8. 5. Make Decision
Accept the fact the company was violating
GAAP principals and do nothing.
– Or
Fix the accounting errors, direct the lower level
employees to follow GAAP, restrict the
financial records access, and check the
employee work as well as an external firm
audit the statements.
9. 6. Double Check
David Welch should (1) fix the accounting
errors, (2) direct lower level employees to
follow GAAP, (3) restrict financial records
access, and (4) check the employee work, (5)
have an external audit firm confirm the
statements.
– These actions would ensure the most correct
financial practices following the SEC and federal
guidelines. David would be seen as a company
leader and keep his job.
10. Making It Personal
Did David Welch ruin his carreer as an
accountant?
How will his future employers view the way he
handled the situation?
David’s loyalty will always be in question.