P-Ethics
(The situation described below is adapted from a case published by the IMA Committee on
Ethics)
UML is a publicly traded corporation that makes various control devices used in manufacturing
mechanical equipment. Joe is the president of UML and Tim is the purchasing agent, both have
worked at UML for the past 10 years. Charlie is UML’s controller and has been with the
company for two years.
Joe: Hi, Charlie, come on in. You said you had a confidential matter to discuss. What’s on your
mind?
Charlie: Joe, I was reviewing our increased purchases from A-l Warehouse Sales last week and
wondered why our volume has tripled in the past year. When I discussed this with Tim he
seemed a bit evasive and tried to dismiss the issue by saying that A-1 can give us one-day
delivery on our orders.
Joe: Well, Tim is right You know we have been trying to implement Just-in-Time and have been
trying to get our inventory down.
Charlie: We still have to look at the overall cost. A-l is more of a jobber than a warehouse. After
investigating orders placed with them, I found that only 10% are delivered from their warehouse,
the other 90% are drop-shipped from the manufacturers. The average markup of A-1 is 30%,
which amounted to about $600,000 on our orders for the past year. If we had ordered directly
from the manufacturers when A-1 did not have an item in stock, we could have saved about
$540,000 ($600 000 x 90%). In addition. some of the orders were late and not complete.
Joe: Now look, Charlie, we get quick delivery on most items, and who knows how much we are
saving by not having to stock this stuff in advance or worry about it becoming obsolete.
Anything else?
Charlie: Yes. I ordered a Dun & Bradstreet credit report on A- l and discovered that Mark Bell
is the principal owner. Isn’t he your brother-in-law?
Joe: Sure he is. But dont worry about Mark. He understands this JIT approach. Besides, he’s
looking out for our interests.
Charlie: (to himself): This conversation has been enlightening, but it doesnt respond to my
concerns. Can I legally or ethically ignore this apparent conflict of interest?
REQUIRED:
1. Would Charlie be justified in ignoring this situation, particularly because he is not the
purchasing agent? Does he have a responsibility to ensure that the JIT approach is
implemented properly? Consider the IMAs Statement of Ethical Professional Practice.
2. State the specific steps Charlie should follow to resolve this matter?
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