Textbook Problem

Ethics, Internal Controls, and the Capitalization Decision

James Sage, an assistant controller in a large company, has a friend and former classmate, Henry Cactus, who sells computers. Sage agrees to help Cactus get part of the business that has been going to a large national computer manufacturer for many years. Sage knows that the controller would not approve a shift away from the national supplier but believes that he can authorize a number of small orders for equipment that will escape the controller’s notice. Company policy requires that all capital expenditures be approved by a management committee; however, expenditures under $2,000 are considered expenses and are subject to much less scrutiny. The assistant controller orders four computers to be used in a distant branch office. In order to keep the size of the order down, he makes four separate orders over a period of several months.

Required:

What are the probable consequences of this behavior for the company? For the assistant controller?