Phantom Expenses

Topic: Padding Expense Accounts

Characters: Jane Adams, New sales person with a small appliance manufacturer; Ann Green, Seasoned sales person with whom Jane Adams was assigned to work


Jane Adams had just completed a sales training course with her new employer, a major small appliance manufacturer. She was assigned to work as a trainee under Ann Green, one of the firm’s most productive sales reps on the East Coast. At the end of the first week, Jane and Ann were sitting in a motel room, filling out their expense vouchers for the week.

Jane casually remarked to Ann that the training course had stressed the importance of accurately filling out expense vouchers. Ann immediately launched into a long explanation of how the company’s expense reporting resulted in underpayment of actual costs. She claimed that all the sales reps on the East Coast made up the difference by padding their under $25 expenses, which did not require receipts. A rule of thumb used was to inflate total expenses by 25 percent. When Jane questioned whether that was honest, Ann said that even if the reported expenses exceeded actual expenses, the company owed them the extra money, given the long hours and hard work they put in.

Jane said that she did not believe reporting fictitious expenses was the correct thing to do and that she would simply report her actual expenses. Ann responded in an angry tone, saying that to do so would expose all the sales reps. As long as everyone cooperated, the company would not question the expense vouchers. However, if one person reported only actual expenses, the company would be likely investigate the discrepancy and all the sales reps could lose their jobs. She appealed to Jane to follow the agreed-upon practice. They would all be better off. No one would lose his or her job. And besides, the company does not really need the money. They are very profitable already.

Author: David J. Fritzsche, Visiting Professor, University of Washington.

What Are the Relevant Facts?

  1. Jane is a new sales rep on the East Coast.
  2. Ann is providing field training for Jane.
  3. All of the sales reps pad their expense accounts.
  4. Ann is trying to convince Jane to comply with the agreed-upon padding scheme.

What Are the Ethical Issues?

  1. Should Jane expose the expense-padding practice of the sales reps?
  2. What obligation does Jane have to her fellow sales reps?
  3. What obligation does Jane have to her company?

Who Are the Primary Stakeholders?

  • Jane
  • Other sales reps
  • Company management
  • Company stockholders

What Are the Possible Alternatives?

  1. Join the crowd and pad the expense account by 25 percent.
  2. Report her expenses accurately and let the cards fall where they may.
  3. Report the padding practice to management.
  4. Resign from the company.

What Are the Ethics of the Alternatives?

  • Ask questions based on a “utilitarian perspective” (costs and benefits).
  1. Which alternative would provide the greatest benefit?
  2. Who would incur costs and who would benefit from each alternative?
  3. What are the costs of expense-account padding to each of the stakeholders?
  • Ask questions based on a “rights” perspective.
  1. Does the firm have a right to expect accurate expense vouchers?
  2. Which alternative provides the greatest “rights” support?
  3. Do employees have a right to pad expenses because they work long and hard hours?
  • Ask questions based on a “justice” perspective (benefits and burdens).
  1. Do the sales reps have a just claim to the extra benefits?
  2. Which alternative provides the best distribution of benefits and burdens?
  3. Does expense-account padding treat fairly all the stakeholders?

What Are the Practical Constraints?

  1. What will exposing all the other reps do to Jane’s working relationships?
  2. Will an exposure lead to retaliation by the other reps?
  3. As a new employee, does Jane have the credibility to blow the whistle?

What Actions Should Be Taken?

  1. What actions would you take if you were Jane?
  2. How would those actions affect your career?
  3. What ethical theories would you base your action upon?