The objective of management control system design should be to achieve goal congruence, the harmony between actions mangers take in their perceived self-interest and actions in the best interest of the organization. Describe ethical issues that need to be considered in designing a management control system.
- Any written explanations should use complete sentences, and appropriate grammar, punctuation, spelling and word usage.
- Your initial post should be at 200-300 words, formatted and cited in current APA style with support from at least 2 academic sources. Your initial post is worth 8 points.
- You should respond to at least two of your peers by extending, refuting/correcting, or adding additional nuance to their posts. Your reply posts are worth 2 points (1 point per response.)
Post by classmate 1
Management Control System is defined as the process in which managers use their influence to get members of the organization into implementation of the organization’s strategies efficiently and effectively by ensuring work of the organization proceeds as intended as well as planning what should be done to ensure those goals are achieved (Hawkins & Merchant, 2011). These plans come in the form of setting up objectives and goals but ethical issues must be considered as well.
Ethical behaviors can be defined as actions by a person that are consistent with what society and individuals typically think are good values. This tends to be good for business as it demonstrates respect for key moral principles that include honesty, fairness, equality, dignity, diversity and individual rights. Managers, sometimes, execute these actions to favor themselves. In other words, employees of companies, regardless of their position, are prone to make decisions that serve their own interests, to the detriment of the organization, in accordance with the conflict of interests between principal and agent, as advocated in agency theory. Managers, for example, can manipulate the performance reports of their department to present better results, even knowing that the information reported is untrue and, in many cases, may even harm the organization (Merchant, 1985).
Ethical issues such as budgetary slack occurs when the manager overestimates the expenses, underestimates the revenues and overestimates the demand for resources under his responsibility without the consent of his superiors (Davis, 2016). A manager that behaves in such a way, aims at self-satisfaction in the remuneration process for results related to the budget.
Another ethical issue that must be considered is data manipulation. A manager that aims at personal advantages by practicing a specific action or not practicing a specific action or practices different actions, all with the purpose of distorting a company’s results, is caused by a failure on internal controls. Such unethical behavior requires consideration while designing management controls.
Anthony, R. N., Hawkins, D. F., & Merchant, K. A. (2011). Accounting: Text and cases 13th edition. New York: McGrawHill/Irwin
Condé, R.A.D. (2013), “Corporate fraud: a multiple case study in the light of corporate scandal theory 101f “, Dissertation (Master of Science in Accounting), Faculty of Administration and Finance of UERJ, Rio de Janeiro.
Merchant, K.A. (1985), “Budgeting and the propensity to create budgetary slack”, Accounting, Organizations and Society, Vol. 10 No. 2, pp. 201-210.
Post by classmate 2
When setting up organizations are set up, some objectives and goals need to be accomplished within a defined period. It is important to ensure that the management control systems are designed in a way such that they integrate the overall goals of an organization with the employee’s personal goals. The management control systems should act as a source of encouragement for organizational managers allowing them to actions in the best interest of the organization. Most importantly, the control systems should be designed in a way that managers can create a conducive work environment that motivates all members of the organization to direct their efforts and energies towards the attainment of the set goals, targets and consequently achieving goal congruence (Lopez-Valeiras, Gomez-Conde, and Lunkes, 2018).
According to Klein, Beuren, and Dal Vesco (2019), the ethical aspects of management control systems are increasingly gaining attention. A wide range of ethical issues must be considered when designing a management control system. Most of these issues are caused by the potential conflicts between organizational goals and the rights of key stakeholders. Given that managers are expected to stakeholders’ basic rights, it is unethical to violate them. Managers must also respect company employees because they also enjoy the right to fair compensation and work conditions. They also need to respect contract agreement between the organization and distributors/suppliers. Knowing how to respond to these issues is critical to ensuring that the organization operates smoothly without interference.
Klein, L., Beuren, I. M., & Dal Vesco, D. (2019). Effects of the management control system in unethical behaviors. RAUSP Management Journal.
Lopez-Valeiras, E., Gomez-Conde, J., & Lunkes, R. J. (2018). Employee reactions to the use of management control systems in hospitals: motivation vs. threat. Gacetasanitaria, 32, 129-134