Read the case Walmart Inventory Shrinkage (a GVV case) below and write a 5-7 page executive summary

Read the case Walmart Inventory Shrinkage (a GVV case) below and write a 5-7 page executive summary on the case, including answers to the following questions.

What are the ethical issues in this case, and who is being affected?
What would you do in this situation?
Do you think what Shane did was whistleblowing? Explain what is meant by whistleblowing?

When answering the three questions above, consider the questions that are presented in the case and use those to frame your responses.

Case study write-ups follow proper APA formatting and integrate Chapter 3: Organization Ethics and Corporate Governance (attached). Well written, proper grammar, and follow APA guidelines including references and in-text citations when needed.

The nations retailers lost a staggering amount of money in 2016 due to shoplifting, organized crime, internal theft, and other types of inventory shrink.

Inventory shrink totaled $48.9 billion in 2016, up from $45.2 billion the year before, as budget constraints left retail security budgets flat or declining, according to the annual National Retail Security Survey by the National Retail Federation and the University of Florida. The thefts amounted to 1.44% of sales, up from 1.38%.

According to the study,1 which was sponsored by The Retail Equation, 48.8% of retailers surveyed reported increases in inventory shrink, and 16.7% said it remained flat. Shoplifting and organized retail crime accounted for 36.5% of shrink, followed by employee theft/internal (30%), administrative paperwork error (21.3%), and vendor fraud or error (5.4%).

Shoplifting continued to account for the greatest losses of overall shrink. Shoplifting averaged $798.48 per incident, up from $377 in 2015. The rise was partially attributed to retailers allocating smaller budgets for loss prevention, leaving them with fewer security staff to fight theft, the report said.

The average loss due to employee theft per incident was put at $1,922.80, up from $1,233.77 in 2015. The average cost of retail robberies dropped to $5,309.72 from $8,170.17 in 2015, but remained at more than double the $2,464.50 seen in 2014.

For the first time in the survey, retailers were asked about return fraud, reporting an average loss of $1,766.27.

The facts of this case are from the Walmart shrinkage fraud discussed in an article in The Nation on June 11, 2014. Literary license has been exercised for the purpose of emphasizing important issues related to organizational ethics at Walmart. Any resemblance to actual people and events is coincidental.2

Shane OHara always tried to do the right thing. He was in touch with his values and always tried to act in accordance with them, even when the going got tough. But nothing prepared him for the ordeal he would face as a Walmart veteran and the new store manager in Atomic City, Idaho.

In 2013, Shane was contacted by Jeffrey Cook, the regional manager, and told he was being transferred to the Atomic City store in order to reduce the troubled stores high rate of shrinkage (i.e., theft including shoplifting and employees stealing) to levels deemed acceptable by the companys senior managers for the region. As a result of fierce competition, profit margins in retail can be razor thin, making shrinkage a potentsometimes criticalfactor in profitability. Historically, Walmart had a relatively low rate of about 0.8% of sales. The industry average was 1%.

Prior to his arrival at the Atomic City store, Shane had heard the store had shrinkage losses as high as $2 million or morea sizable hit to its bottom line. There had even been talk of closing the store altogether. He knew the pressure was on to keep the store open, save the jobs of 40 people, and cut losses so that the regional manager could earn a bonus. It didnt hurt that he would qualify for a bonus as well, so long as the shrinkage rate was cut by more than two-thirds.

Shane did what he could to tighten systems and controls. He managed to convince Cook to hire an asset-protection manager for the store. The asset-protection program handles shrink, safety, and security at each of its stores. The program worked. Not only did shrinkage decline but other forms of loss, including changing price tags on items of clothing, were significantly reduced.

However, it didnt seem to be enough to satisfy Cook and top management. During the last days of August 2013, Shanes annual inventory audit showed a massive reduction in the stores shrinkage rate that surprised even him: down to less than $80,000 from roughly $800,000 the previous year. He had no explanation for it, but was sure the numbers had been doctored in some way.

During the remainder of 2013, a number of high-level managers departed from the company. Cindy Rondel, the head of Walmarts Idaho operations, retired; so did her superior, Larry Brooks. Walmarts regional asset-protection manager for Idaho, who was intimately involved with inventory tracking in the state, was fired as well. Shane wondered if he was next.

Shane decided to contact Cook to discuss his concerns. Cook explained why the shrinkage rate had shrunk so much by passing it off as improper accounting at the Atomic City store that had been corrected. He told Shane that an investigation would begin immediately and he was suspended with pay until it was completed. Shane was in shock. He knew the allegations werent true. He sensed he might become the fall guy for the fraud.

Shane managed to discretely talk about his situation with another store manager in the Atomic City area. That manager said she had been the target of a similar investigation the year before. In her case, she had discovered how the fraud was carried out and the numbers were doctored, but she had told no oneuntil now.

She explained to Shane that the fraud involved simply declaring that missing items were not, in fact, missing. She went on to say you could count clothing items in the store and if the on-hand count was offas in, you were supposed to have 12 but you only had 10you could explain that the other 2 were in a bin where clothing had been tried on by customers, not bought, and left in the dressing room, often with creases that had to be cleaned before re-tagging the clothing for sale. So, even though some items may have been stolen, they were still counted as part of inventory. There was little or no shrinkage to account for.

At this point Shane did not know what his next step should be. He needed to protect his good name and reputation. But what steps should he take? That was the question.

Questions

Assume you are in Shane OHaras position. Answer the following questions.

Put on Your Thinking Cap and explain how the provisions of the Sarbanes-Oxley Act might have helped to detect the fraud.

What anti-fraud controls might have helped detect the fraud. Why?

Assume you are in Shane OHaras position. What would you do next and why? Consider the following in crafting your response.

Who are the stakeholders in this case and what are the ethical issues?

What do you need to say, to whom, and in what sequence?

What are the reasons and rationalizations you are likely to hear in getting your point across?

What is your most powerful and persuasive response to these arguments? To whom should you make them? When and in what context?

Is this a situation where you would seriously consider blowing the whistle since you were suspended with pay? Under what conditions would you blow the whistle and what process might you follow?

Pressure to reduce inventory shrinkage at a Walmart store amidst alleged accounting improprieties and related efforts of the protagonist to voice values.

Organizational Ethics and
Corporate Governance

Chapter 3

Organizational Ethics and Ethical Climate

Organizational ethics
Sound moral principles

Organizational ethical climate
Moral atmosphere
Level of ethics practiced within a company
Determined by leaders

Critical component
Shared Values, Beliefs, Goals, and Problem-

solving Mechanisms
Focuses on issues of right and wrong

Ethical Leadership

Leaders of Good Character
Possess integrity, courage, and compassion
Careful and prudent
Decisions and actions inspire employees to act in an

enhancing way

Virtues
Courage, temperance, wisdom, justice, optimism,

integrity, humility, reverence and compassion

Role Models

Key Markers of Highly Ethical Organizations

Humility
Zero tolerance for individual and collective destructive

behaviors
Justice
Integrity
Trust
A focus on process
Structural reinforcement
Social responsibility
Values-driven organization that encourages openness,

transparency, and provides supportive environment to voice
values without fear of retribution or retaliation

Framework for Understanding Ethical
Decision Making in Business

Ethical Issue Intensity
Importance of the issue to the individual, work group and/or

organization (intensity) based on values, beliefs and norms involved
and pressures in the workplace.

Individual Factors
Values of individuals
Organizational and social forces shape behavioral intentions and

decision making
Organizational Factors

Organizations values have a greater influence than a persons own
values.

Opportunity
Conditions that limit or permit ethical or unethical behavior

Business Ethics Intentions, Behavior, and Evaluations
Organizational ethical culture is shaped by effective leadership

Organizational Influence on Ethical Decision
Making

The Jones-Hiltebeitel model looks at the role of
ones personal code of conduct in ethical
behavior within an organization

Moral intensity

When ones personal code is insufficient to
make the necessary moral decision, the
individual will look at professional and
organizational influences to resolve the conflict

Ethical Dissonance Model

Interaction between the individual and the
organization, based upon person-organization
ethical fit at various stages of the contractual
relationship in each potential ethical fit scenario

Four potential fit options:
1. High-High (high organization & high individual ethics)
2. Low-Low (low organization & low individual ethics)
3. High-Low (high organization & low individual ethics)
4. Low-High (low organization & high individual ethics)

Seven Signs of Ethical Collapse

Occurs when any organization has drifted from the
basic principles of right and wrong Marianne
Jennings

1. Pressure to maintain numbers
2. Fear and silence
3. Young uns and bigger than life CEO
4. Weak board of directors
5. Conflicts of interests overlooked or unaddressed
6. Innovation like no other company
7. Goodness in some areas atones for evil in others

Pressure to Maintain Numbers and Fear of
Reprisals

Ethical collapse occurs when there is an
unreasonable and unrealistic obsession with
meeting quantitative goals

financial results at all costs

Employees are reluctant to raise issues of ethical
concern because they may be ignored, treated
badly, transferred or worse

kill the messenger syndrome

Loyalty to the Boss and Weak Board of
Directors

Young people selected by the CEO for their
position based on inexperience, possible
conflicts of interest, and unlikelihood to
question the boss’ decisions

Weak board of directors characterizes virtually
all of the companies with major accounting
frauds in the early part of the 2000s

Stakeholder Orientation

Business Stakeholders
Investors and shareholders, creditors, employees,

customers, suppliers, government agencies, communities
and others

Have a stake or a claim in some aspect of a companys
products, operations, markets, industry and outcome

Stakeholder orientation is the degree to which an
organization understands and addresses stakeholder
demands. Consists of

Generation of data about stakeholder groups and
assessment of the firms effects on these groups

Distribution of this information throughout the firms
The responsiveness of the organization as a whole to this

information

The Ford Pinto Case

Subcompact car
Unsafe gas tanks could burst into flames
Initial ethical legalism defense
Risk/cost benefit analysis
Too costly to replace the fuel tanks
Compliance with law versus ethical behavior met

all safety requirements
Utilitarian reasoning

Focusing on costs and benefits
Ignores rights of various stakeholders
Ignored cost of potential lawsuits

Establishing an Ethical Culture

Corporate culture is the shared beliefs of top managers
in a company about how they should manage
themselves and other employees, and how they should
conduct their business (es).

Tone at the top refers to the ethical environment that is
created in the workplace by the organizations
leadership.

Corporate culture starts with an explicit statement of
values, beliefs, and customs from top management.

A code of ethics serves as a guide to support ethical
decision making.

It clarifies an organizations mission, values, and principles,
linking them with standards of professional conduct.

Trust in Business

Trust means to be reliable and carry through words
with deeds.

Trust becomes pervasive only if the organizations
values are followed and supported by top
management.

Trust can be lost, even if once gained in the eyes of
the public, if an organization no longer follows the
guiding principles that helped to create its
reputation for trust.

Credo is an aspirational statement that encourages
employees to internalize the values of the company.

Johnson & Johnson:
A Case of Dr. Jekyll and Mr. Hyde?

J&Js credo emphasizes primary obligation to those who use
and rely on the safety of its products

Tylenol Poisoning J&J put customer safety first
J&J has been withdrawing from its trust bank in recent

years
Illegally promoted the antipsychotic Risperdal
Misleading statements about the recall of Motrin
Included methylene chloride, which is banned by the FDA, in their

baby shampoo
DePuy Orthopaedics sold metal-on-metal hip implants that were

found to shed minute particles into a patients bloodstream over
time

Ethicon vaginal mesh did not meet reasonable safety standards
Takes a long time to build a reputation of trust, but not very

long at all to tear it down.

Ethics in the Workplace

A code of conduct goes beyond what is legal for an organization and
provides normative guidelines for ethical conduct. Support for ethical
behavior from top management is a critical component of fostering an
ethical climate.

Measures that should be taken to establish an ethical culture:
Clear policies on ethical conduct including a code of ethics
Ethics training program that instills a commitment to act ethically and explains

the code provisions
A top level officer (Chief Ethics and Compliance Officer) to oversee ethics and

compliance
Use internal auditors to investigate whether ethics policies are followed
Strong internal controls to prevent and detect unethical behaviors
Whistleblowing policies, including reporting outlets
Ethics hot line for anonymous tips
Ethics statement signed by employees
Enforce ethics policies fairly and take immediate action against violators
Reward ethical behavior and include in performance evaluation system

Character and Leadership in the Workplace

Characteristics of ethical behavior in leaders
include:

Managers are people who do things right and
leaders are people who do the right thing.
Warren Bennis

Rules for managers to set ethical tone at the
top:

Consider how your actions affect others.
Do no harm.
Make decisions that are universal.
Reflect before deciding.

KPMGs Integrity Survey 2013

People of integrity are self-driven to do the right thing.
KPMGs Integrity Survey 2013 surveyed more than 3,500 U.S.

workers
Nearly 75% of employees observed misconduct within past 12 months
More than 50% of employees reported what they observed could cause a

significant loss of public trust if discovered
Causes: Pressure to do whatever it takes to meet targets, not taking

code of conduct seriously, fear of losing ones job for not meeting targets,
rewarding employees for results and not the means used to achieve them

When employees were asked what they would do on observing a
violation of code of conduct,

78% would notify their supervisor or another manger
54% would try resolving the matter directly
53% would call the ethics or compliance hotline
26% would notify someone outside the organization
23% would look the other way or do nothing

2013 National Business Ethics Survey

Views of Employees from 2011-2013:
Observed misconduct have declined between 2011 and 2013.
Pressure to compromise ethical standards declined but

retaliation against whistleblowers increased; increase in ethics
training programs and the use of ethical conduct in employees
evaluations.

Six most observed types of misconduct: (1)stealing or
theft, (2)falsifying time reports, (3) falsifying expense
reports, (4)falsifying and manipulating financial
reporting information, (5)falsifying invoices, books, and
records, and (6) accepting gifts or kickbacks.

Concern that while misconduct is down overall, a
relatively high percentage of misconduct is committed
by managers.

ACFE 2014 Report to the Nation
Occupational Fraud

Fraud can be defined as a deliberate
misrepresentation to gain advantage over
another party

Typical business loses 5% of annual revenues to
fraud; median loss of $145,000

Occupational fraud is use of ones position
within organization to misappropriate
organizations resources or assets for personal
gain

Frauds lasted a median of 18 months before
detection

More likely to be detected by tip, using hotlines,
than any other way

ACFE 2014 Report to the Nation
Occupational Fraud

Frequency of Anti-Fraud Controls
External audit of financial statements – 81.4%
Code of conduct – 77.4%
Internal audit department – 70.8%
Management certification of financial statements –

70.0%
External audit of internal controls – 65.2%
Management review – 62.6%
Independent audit committee – 62.0%

Behavioral Indicators of Fraud

Living Beyond Means
Financial Difficulties
Unusual Close Association with Vendor/Client
Control Issues, Unwillingness to Share Duties
Wheeler-Dealer Attitudes
Divorce/Family Issues
Instability, Suspiciousness or Defensiveness
Addiction Problems
Complained about Inadequate Pay
Refusal to Take Vacations

Internal Control Weaknesses

Internal control includes all of the processes and
procedures that management puts in place to help make
sure that its assets are protected and that company
activities are conducted in accordance with the
organizations policies and procedures.

An effective system of internal controls is critical to
establish an ethical corporate culture that should be
supported by the tone at the top.

An internal control system, no matter how well
conceived and operated, can provide only reasonable –
not absolute assurance to management and the board
of directors regarding achievement of an entitys
objectives.

Management override of internal controls may be a
problem.

Financial Statement Fraud

Fraud schemes occur because an employee usually top
management causes a misstatement or omission of material
information in the organizations financial reports.
Methods include:

Revenue Overstatement
Recording gross, rather than net, revenue
Recording of revenues of other companies, acting as a middleman
Recording sales that never took place
Recording future sales in the current period
Recording sales of products that are out on consignment

Expense Understatement
Recording cost of sales as a non-operating expense
Capitalizing operating costs
Not recording some expense at all

Improper Asset Valuations
Manipulating reserves
Changing the useful lives of assets
Failing to take a write-down when needed
Manipulating estimates of fair market value

Miniscribe Fraud

Top management committed the fraud and
overrode internal controls

Company lacked independent members on its
Board of Directors

Salaries and bonuses often depended on Miniscribe
making the numbers

Inventory hole initially worth $2-4 million, then $15
million

Miniscribe bought bricks to disguise as hard drives
and conceal as inventory worth $4 million

Repeatedly signed management letter stating
financial reports were accurate and truthful

Why does Financial Statement Fraud
Occur?

Situational pressure
Perceived opportunity
Rationalization
A culture is created and tone at the top

established that presents the image of a
company willing to do whatever it takes to paint
a rosy picture about financial results.

Corporate Governance Structures
and Relationships

Corporate governance is shaped by internal and
external mechanisms.

Internal mechanisms help manage, direct, and monitor
corporate activities to create sustainable stakeholder
value.

Examples: independent board of directors, the audit
committee, management, internal controls and the internal
audit function

External mechanisms are intended to monitor the
companys activities, affairs, and performance to ensure
that the interests of insiders (management, directors,
and officers) are aligned with the interests of outsiders
(shareholders and other stakeholders).

Examples: the financial markets, state and federal statues,
court decisions, and shareholder proposals

Best Practices of Governance

Independent directors enhance governance
accountability

Separation of the duties of CEO and board chair
Separate meetings between the audit

committee and external auditors strengthen
control mechanisms

Ethical and Legal Responsibilities
of Officers and Directors

Directors and officers are deemed fiduciaries of the corporation as
their relationship with the corporation and its shareholders is one
of trust and confidence

Duty of Care act in good faith, exercise the care that an ordinarily
prudent person would exercise in a similar situation

Duty of Loyalty act in the best interest of corporation; loyalty can
be defined as faithfulness to ones obligations and duties

Duty of Good Faith requires an honesty of purpose that leads to
caring for the well-being of the constituents of the fiduciary

Business Judgment Rule expected to exercise due care and to use
their best judgment in guiding corporate management, but they are
not insurers of business success; honest mistakes and poor
business decisions do not make them liable to the corporation for
resulting damages

Audit Committee

Independent directors with one having financial expertise
Oversight of financial reporting

Internal audit function
External auditors
CEO and CFO financial statement certification process

Review formal announcements of earnings, significant financial
reporting judgments, internal controls and risk management
procedures, whistleblower and compliance program, external
auditors independence and objectivity and effectiveness of audit
process

Seen as the one body that should be able to prevent identified
fraudulent financial reporting

Committee should meet separately with the senior executives, the
internal auditors, and the external auditors

Internal Auditors

Monitor corporate governance activities and
compliance with organization policies

Review effectiveness of the organizations code of
ethics and whistle-blower provisions

Eyes and ears of audit committee
Assess audit committee effectiveness and

compliance with regulations
Oversee internal controls and risk management

processes
Assurance on how effectively the organization assesses

and manages its risk
Assurance on data security and privacy controls

External Auditors

An obligation to the public interest that underlies
their corporate governance responsibilities

Protect the interests of shareholders
Conduct audits independent of any influence of

management or the company
Communicate effectively with the audit committee:

accounting policies and procedures, estimates by
management; quality of financial reporting;
potential violations of laws

Ensures accountability for financial reporting
process

Internal Controls

Prevent and detect errors and fraud
Asset misappropriations
Materially false and misleading financial reports
Inadequate disclosures

Ensure management policies are followed
Ethical systems built into corporate governance
Can be overridden by top management

Do what CEO says, not what he does
Creates cynical attitude
Managers need to walk the talk of ethics

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