Ethical Dilemma Revenue Inflation at Diebold

EthicalDilemma: Revenue Inflation at Diebold

DesignatedReader: Accounting students


Accountantscan decide to decide to engage in unethical practices to eitherpursue their personal interest or yield to the pressure from themanagement. Accountants at Diebold yielded to pressure from the topmanagement, which wanted to inflate the company revenues to safeguardthe reputation of the company. The ethical dilemma originated fromthe fact that the accountant was in a situation that required thecompany to either protect the perceived performance record or observethe accounting ethics. The fraud indicates the lack of ability on theart of the accountants as well as the top executives to manage theiraccountability. It also shows a lack of personal values, ethics, andmorals. The dilemma can be resolved or prevented from recurring inthe future by setting goals that are attainable, using differentalternatives to increase the company’s revenue to thepre-determined targets or training employees on work ethics.

Keywords: professional ethics, ethical dilemma, achievable goals,revenue inflation.

Table of Contents

Executive Summary i

Ethical Dilemma: Revenue Inflation at Diebold 1

Unfolding of the dilemma at Diebold 1

Ethical issues in the dilemma 2

Management of accountability 2

Personal values and morals 3

Options available to solve the dilemma 3

Setting achievable revenue targets 3

Increasing the company revenue to meet the forecast revenue 3

Organizing ethics training programs 4

Recommended solution 4

Conclusion 5

References 5

EthicalDilemma: Revenue Inflation at Diebold

Althoughethics should be observed in all fields of profession, accountantsare at a higher risk of facing significant ethical dilemmas. This isbecause accounts are expected to give the impression of the financialperformance of the organization through their accounting knowledgeand skills. Accountants often find themselves under pressure from themanagement to give the wrong accounting or financial information inorder to help the organization achieve certain goals. This placesaccountants in a dilemma because they have to decide whether toobserve accounting ethics or pursue certain goals set by the employerthrough intelligent accounting (Swain, 2014). This paper will addressthe accounting dilemma in which accountants at Diebold were underpressure to inflate the company revenue for a period of five yearsbefore the fraud was discovered in 2010. The paper will focus onunfolding of the ethical dilemma, ethical issues in the dilemma, theoptions available to solve the dilemma, and the recommended solution.

Unfoldingof the dilemma at Diebold

DieboldIncorporation is a public company that manufactures and distributesthe bank security systems, ATMs, and electronic voting systems(Quinn, 2010). The company had hired a financial analyst who made aregular financial forecast and targets that the management of Dieboldshould seek to achieve. However, the company could not achieve therevenue targets set by the financial analyst. This subjected DieboldIncorporation to a challenging situation because failure to achievethe financial performance goals could give the wrong impression tothe stakeholders, including the shareholders. To this end themanagement decided to apply intelligent accounting to inflate thecompany’s revenue with the objective of filling the gap between theactual revenue and the forecasted figures. Quinn (2010) stated,“Diebold`s financial management prepared &quotopportunity lists&quotof ways to close the gap between the company`s actual financialresults and analyst forecasts” (1). For example, the 2007 revenueinflation was the largest where the company accountant filed a $ 127million gap between the actual revenue and the targeted revenue(Quinn, 2010). Diebold Incorporation was charged a $ 25 millionpenalty by SEC following the discovery of the fraudulent action ofinflating revenues. The company’s chief executive, Walden O’Dell,was forced to reimburse Diebold $ 470,016 cash bonuses, 85,000 stockoptions, and 30,000 shares of the company (Quinn, 2010).

Figure1: Electronic security, an example of products manufactured byDiebold

Source:Diebold Incorporation (2014)

Ethicalissues in the dilemmaManagementof accountability

Accountantsare expected to observe the accounting standards that guide theirpractices, irrespective of their workplace situations. However,pressure from employers or the organizational management to alteraccounting records for certain purposes is a common occurrence in theaccounting profession. Accountants at Diebold faced such a situation,where the management required them to alter the financial reports(including the income statement) order to give a false impression ofthe Diebold’s financial earning capacity (Quinn, 2010). Byaccepting to alter the income statement, accountants broke theprinciple of accountability. Although accountants receive orders andinstructions from the senior management, they have an obligation todetermine actions that will subject them to the risk of litigationand unethical practices.

Personalvalues and morals

Thereare some personality traits that the organizational stakeholdersexpect accounts to possess and apply them in their day-to-daypractices. For example, it is expected that all accounts shouldremain honest with their employer and the shareholders by preparingfinancial statements that reflect the true and fair status of thecompany. In the case of Diebold Incorporation, accountantsdemonstrated a lack of morals, positive values, and morals that areexpected to guide them at work (Swain, 2014). Inflating the companyrevenue demonstrated lack of honesty since the false revenues coulddeceive potential investors, existing shareholders, and otherstakeholders.

Optionsavailable to solve the dilemmaSettingachievable revenue targets

Itis evident that the ultimate cause of the accounting dilemma was thehigh revenue targets set by the financial analyst. This is consistentwith the goal setting theory, which holds that organizational goalsand persuasive and have the ability to influence the character andbehavior of employees (Lunenburg, 2011). To this end, settingdifficult, but achievable revenue targets will be a motivation forthe Diebold’s management to work hard and avoid falsifying thefinancial records. This can be achieved by allowing all employees,including the account to take part in the process of setting therevenue targets, unlike the current situation where these targets areset by the financial analyst. The participatory approach will enhancethe acceptability of the revenue targets, motivate all employees topursue the revenue goals, and reduce the risk of being tempted toalter the income statement.

Increasingthe company revenue to meet the forecast revenue

Designingstrategies that can help Diebold Incorporation meet the targetrevenue set by the financial analysts. By increasing the companyrevenues, Diebold will not find the need to inflate its revenue as ameans of impressing the stakeholders. The Diebold management canincrease revenue in several ways. The company can add complementaryservices to its existing range of services and products in order togenerate more revenue (Lasune, 2012). The management can also focuson the marketing campaigns, which will help it in increasing thecustomer base and revenue. These strategies will help the managementgenerate a reasonable amount of revenue, which will in turn reducethe need to inflate the actual revenue.

Organizingethics training programs

Lackof personal values, ethics, and morals among the members of themanagement team and the accounting department were some of the majorcauses of the fraud at Diebold. The top management initiated the ideaof inflating the annual revenue by manipulating accruals as well asreserves, capitalization of expenses, and improper use of the billand hold accounting (Quinn, 2010). On the part of the accountant,accepting to collude with the top management to conduct thesemanipulations is an indication of lack of professional ethics. Thecompany should, therefore, embark on organizing ethics trainingprograms for all employees, including the top management. Effectivetraining programs help employees achieve pre-determinedorganizational goals and address complex ethical issues (Sekerka,2009). The training programs will reduce the chances for theoccurrence of the accounting fraud in the future.


TheDiebold Incorporation has several options that it can use to resolvethe dilemma and reduce the probability for the occurrence ofaccounting fraud in the future. However, setting achievable revenuetargets is the most viable solution. A study has shown that employeesare willing to pursue challenging goals, but the goals should bewithin their capability (Lunenburg, 2011). The increase in thedifficulty of goals reduces the motivation of employees, who tend toreject the goals by labeling them as unattainable and unreasonable.Goals affect all people in the organization, which implies that theprocess of setting revenue goals should involve all people who willbe affected in one way or another. Diebold will be able to set goalsthat are agreed upon by all stakeholders by inviting them into thegoal setting process.


Accountingis one of the professions that subject employees to the highest riskof engaging in unethical practices. Accountants’ tendency to engagein unethical practices may originate from personal interest orpressure from the top company executives. In the case of DieboldIncorporation, accountant was pressured by the management tomanipulate financial statements in order to give an impressivepicture of the company performance to the stakeholders. However, theprimary cause of this ethical dilemma was the establishment ofunrealistic revenue targets. Failure to achieve the pre-determinedfinancial forecasts would have sent a message that the management isincompetent. In essence, both the management and the companyaccountant lacked personal values, ethics, and morals that would haveguided their practices. This ethical dilemma can be addressed bysetting attainable revenue goals that include the contribution of thestakeholders.


DieboldIncorporation (2014). Products and services. DieboldIncorporation.Retrieved December 11, 2014, from

Lasune,S. (2012). Marketing strategies and quality management f five starhotels in order to improve its revenue with special references toselected five star hotels in Mumbai. Journalof Research in Commerce and Management,1 (4), 28-37.

Lunenburg,C. (2011). Goal-setting theory of motivation. InternationalJournal of Management, Business, and Administration,15 (1), 1-6.

Quinn,O. (2010). SEC charges Diebold and former executives with accountingfraud. U.S.Securities and Exchange Commission.Retrieved December 11, 2014, from

Sekerka,E. (2009). Organizational ethics education and training: A review ofbest practices and their application. InternationalJournal of Training and Development,13 (2), 77-95.

Swain,K. (2014). Workplace ethics in accounting. GlobalPost.Retrieved December 11, 2014,