Magazine article CMA - the Management Accounting Magazine

The Ethical Temperature in Arcticview

Magazine article CMA - the Management Accounting Magazine

The Ethical Temperature in Arcticview

Article excerpt

This case study challenges you to consider if it is acceptable to misdirect government funding to keep your company afloat.

Mary Benninger had sought out her old friend, Tom Chu, to discuss her employment situation. Mary and Tom had both graduated in 1985 from Mackenzie King University, and then studied together to attain their CMA designations in 1988. Soon thereafter, Tom was promoted quickly within his division of a large multi-national auto supply company, and now held the position of vice-president/controller. Mary, on the other hand, had temporarily removed herself from full-time employment in 1990 to raise her young daughter. She kept herself up-to-date professionally and handled the occasional short-term consulting assignment. Six months ago, she had re-entered the workforce, her return accelerated by the fact that her husband, Frank, had been stricken by a debilitating illness.

It had surprised Mary somewhat that she was able to land a position quickly as controller and office manager for Hewsen Chemical Inc., a small, privately-held producer of specialty chemicals used in testing labs and other manufacturing firms. Hewsen was a relatively new and growing company with innovative ideas, and Mary was pleased and excited to have had the good fortune to join its management team. Today, however, meeting with her CMA colleague and trusted friend, Mary was troubled.

"I don't know what to do, Tom. I thought I was taking on an ideal position; an emerging company, with flexible working hours, decent pay and a good benefits package to help with Frank's medical expenses. But the situation sure turned sour quickly. I really don't know who to talk to. In fact, Tom, I'm not sure that I should be talking to you."

"Nonsense," said Tom, "You know you can count on me after all we've been through together. Tell me what's going on."

"Well," said Mary, "Initially, things were going very well for Hewsen Chemical. None of the larger companies were interested in the small niche market that Hewsen had carved out. Sales grew rapidly, and because of our success, Dusque, the big integrated chemical conglomerate, set up a subsidiary to compete with us. Since then, we've taken a real hit in sales and profits. Our business is down 30 per cent, and the new plant that we built in Brampton three years ago is operating at 50 per cent of capacity.

"That's certainly not good news," said Tom, "Have you got your expenditures under control?"

"I gather we were never very good at cost control and internal controls were virtually non-existent. When we were growing so quickly, sales were more important than costs. When things got tough, they dismissed my predecessor and hired me.

They told me that I could have free rein to implement whatever I thought was necessary. And boy, are some changes ever necessary! Our senior staff really don't know the difference between personal and corporate spending, and I think our sales and marketing expenses are double what they should be. It will be a challenge to sort that out, but I'm pretty sure I can get this under control. The really big problem that has me worried is our northern development grant."

"I don't know a lot about government grant programs," cautioned Tom, "but tell me more."

"When business fell off, Brian Hewsen, our president, attended a seminar on how to get government grants. He discovered that a matching program was available for firms to establish northern manufacturing facilities. So, Brian, and our v.p. of operations submitted a grant proposal for us to manufacture chemicals in Arcticview, a remote village with about 2500 people, where the mines have been phasing out. The proposal was simply an adaptation of an earlier unsuccessful grant application for our Brampton operations. The government must have been real anxious for someone to locate in Arcticview, because the new proposal was accepted in a wink, this time. Moreover, both levels of government have provided matching funds of $750,000 - a total of one and a half million in government money. …

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