Bennie Gordon graduated with a master’s in accounting two years ago and now works as an accounting manager at the division level at Jet Energy Company headquartered in Winston-Salem, North Carolina. Jet Energy is a utility company regulated by the state and provides electricity to 7 million customers in southern states. Jet Energy is allowed a maximum rate of return on operating income of 12.5 % on electricity it sells. If the company is earning more than that, regulators can cut the rate it charges its customers.
Gordon reports to Sarah Higgins, the controller of the division. Higgins report to Sam Thornton, the chief financial Officer. Thornton reports to Vanessa Jones, the CEO of the company. Joan Franks is the chief compliance officer. The company has an audit committee of three members, all of whom sit on the board of directors.
Gordon has identified irregular accounting entries dealing with the reclassification of some accounting items to make the company’s returns lower so state regulators would not cut rates. One example is that Jet Energy often gets rebates from insurers of its nuclear plants, based on safety records. Although the cost of the premium is expensed to the electric business, the rebates-approximately $26 million to 30 million each were not booked back to the same accounts. On a number of occasions, they were booked below operating income in a non-operating account. The moves kept Jet Energy from exceeding its allowable returns and kept the states from reducing electricity rates.
After two years of being silent, Gordon decided it was time to address the issue. He knows his options include to report the matter to top management and/or the North Carolina Utilities Commission.
Questions:
Develop an action plan to get your point of view across? What would you say?
How would you convince the rightness of your position?