Case 97. Maintaining Documentation of Professional and Scientific Work

Situation

Philip Engledorf , Ph.D., is a sociologist who owns and operates a private research and consulting organization that has prospered over the years. He has never been one for paperwork and has always disliked having to maintain proper files for outside inspectors. He feels if he produces the deliverables for a project and charges only within a budgeted amount, it should not be anyone's concern how the money is allocated to complete the work. In earlier days when many of his company's projects were not audited, he had the ability to move money around from one category to another and if some line items actually cost less than specified, he "pocketed" the difference as part of his profit.

Today, however, most of Dr. Engledorf's contracts are in excess of $25,000 and with government agencies. As such, there are requirements for independent audits (financial as well as compliance) of the projects under contract. Given this, the requirements for proper documentation of work completed and expenditures has increased dramatically. 
Recently, in one of the state contracts that did not require an audit, some problems surfaced and the state wanted documentation of the expenditures for the specified line item budget. Dr. Engledorf knew he did not have the proper documentation, but he felt he could make it up and give it to the state to satisfy them. Since he was not charging any more to the state than originally specified, he felt justified in doing this. 

Questions

1.    What are the ethical issues in this case? 
2.    Is Dr. Engledorf justified in his actions?
3.    What are courses of action that Dr. Engledorf could have taken to maintain the highest ethical standards?


     Reflect on the above questions and form your own answers before clicking the Discussion key to review the commentary provided with this case.

Discussion

On one hand Dr. Engledorf behaves in a manner typical of businessmen. Budget estimates given to clients do not always match actual costs and expenditures; the difference is where businesses "make out" and earn a profit. Dr. Engledor is delivering a requested product and not charging more than originally estimated. In his mind, he is behaving ethically since the client's expectations are met.

On the other hand, there are two ethical issues in this case. As a professional, it is incumbent upon Dr. Engledorf to maintain proper paperwork and documentation, since at any time a state agency has the right to audit a contractor, even if not required according to state auditing standards. Honesty is the other ethical issue. It is clearly dishonest to “make up” documentation and submit it to auditing agents. Dr. Engledorf needs to revise his budgeting process; instead of "hiding" where the profit comes from, he needs to project costs accurately, make budget amendments when required, incorporate an accurate indirect cost expenditure line item, and include a separate line item for "fee for profit."

Dr. Engledorf is on the border between what is or is not ethical. He may be acting in a normative fashion for business, but as a professional, his actions are not above reproach.