Ethical issue at Residence Suites: Budget increases for labor and supplies Resid

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Ethical issue at Residence Suites: Budget increases for labor and supplies
Residence Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job so turnover is high.
Assistant manager/controller Terry Dunn asked the new bookkeeper to help prepare the hotel's master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotels performance. The performance evaluations affect hotel managers' bonuses and they also affect company decisions on which hotels deserve extra funds for capital improvements.
When the budget was almost complete, Dunn asked the bookkeeper to increase amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because comany headquarters tightly controlls capital improvements funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay "bonuses" to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Put yourself in Dunn's position.

1. What is the ethical issue?
2. What are my options?
3. What are the possible consequences?
4. What should I do?

Explanation / Answer

1) The ethical issue is falsifying the budget. 2) My options are to talk to the manager about not adding the extra 15% into the budget, comply regardless, or refuse and have the budget prepared as should be. 3) If I comply and the budget for labor and supplies is increased, I could be fired, fined or worse when it is uncovered by headquarters. 4) I would talk to the manager (Murry) about why falsifying the budget is unethical and could hurt the company. Even if he didn't see it that way, I'd have the bookkeeper prepare the budget correctly and risk being fired.

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