Johnny Fuller owns and manages Johnny\'s Restaurant, a 24-hour restaurant near t
ID: 462909 • Letter: J
Question
Johnny Fuller owns and manages Johnny's Restaurant, a 24-hour restaurant near the city's medical complex. Johnny employs 9 full-time employees by check, the amounts of which are determined by Johnny's public accountant, Mary Lake. Johnny pays all of his part-time employees in currency. He computes their wages and withdraws the cash directly from his cash register.
Mary has repeatedly urged Johnny to pay all employees by check. But as Johnny has told his competitor and friend, Steve Hill, who owns the Greasy Diner, "First of all, my part-time employees prefer the currency over a check, and second, I don't withhold or pay any taxes or workmen's compensation insurance on those wages because they go totally unrecorded and unnoticed."
Who are the stakeholders in this situation? What are the legal and ethical considerations regarding Johnny's handling of his payroll? What are Mary Lake's responsibilities in this case? What internal control principle is violated in this payroll process?
Explanation / Answer
In this case stakeholders are Johnny, Johnny’s accountant and Mary Lake. Legal considerations is not reporting these cash payrolls in taxes that if found lead to penalties whereas ethical considerations is due to mistake of Johnny his accountant is also at stake. Mary Lake is aware of Johnny’s payment of the part time payroll in currency. Her ethical responsibility is that she should insist Johnny to include the cash payroll in taxes In this case Principal violated is that payroll is handled by Johnny himself not public accountant.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.