Sunshine Center: an Instructional Case
ISSUES IN ACCOUNTING EDUCATION
Vol. 25, No. 4
2010
pp. 709–720
American Accounting Association
DOI: 10.2308/iace.2010.25.4.709
Sunshine Center: An Instructional Case
Evaluating Internal Controls in a Small
Organization
Sandra K. Fleak, Keith E. Harrison, and Laurie A. Turner
ABSTRACT: Management and auditors face increased responsibilities to evaluate internal control and assess the risk of fraud. This case provides the opportunity to evaluate internal controls and the possibility of fraud in a very small not-for-profit child care center, a setting that is easy to understand. The first goal of the case is to identify internal control weaknesses by applying the COSO internal control framework in an environment that lacks many aspects of internal control. Interactions among the five components of the COSO framework provide the basis for analyzing internal control.
The case requires students to consider possible misappropriation of funds using the fraud triangle. A secondary goal of the case is to introduce financial reporting for a not-for-profit organization as a means of accountability.
Keywords: internal control; COSO framework; fraud; not-for-profit organization; financial reporting.
CASE
Crisis de jour! Our director is not cooperating. And, where is the money going? I would like to be able to act rather than react. We must keep the place open!
S
arah, chair of the Sunshine Center Committee, and the Committee’s secretary, Olivia, talked almost daily about the operations of the Sunshine Center. “At least the children seem happy and well cared for,” Sarah reminded Olivia. “Yes,” Olivia agreed, “but if we cannot pay the bills and keep our help, we will not be open long to serve them. Rev. Andrew thinks everything will work out, but I am not so sure.”
Background
The Sunshine Center Center opened several years earlier when the church allowed a member to provide child care services and pay rent to use the church facilities. The church’s
Vol. 25, No. 4
2010
pp. 709–720
American Accounting Association
DOI: 10.2308/iace.2010.25.4.709
Sunshine Center: An Instructional Case
Evaluating Internal Controls in a Small
Organization
Sandra K. Fleak, Keith E. Harrison, and Laurie A. Turner
ABSTRACT: Management and auditors face increased responsibilities to evaluate internal control and assess the risk of fraud. This case provides the opportunity to evaluate internal controls and the possibility of fraud in a very small not-for-profit child care center, a setting that is easy to understand. The first goal of the case is to identify internal control weaknesses by applying the COSO internal control framework in an environment that lacks many aspects of internal control. Interactions among the five components of the COSO framework provide the basis for analyzing internal control.
The case requires students to consider possible misappropriation of funds using the fraud triangle. A secondary goal of the case is to introduce financial reporting for a not-for-profit organization as a means of accountability.
Keywords: internal control; COSO framework; fraud; not-for-profit organization; financial reporting.
CASE
Crisis de jour! Our director is not cooperating. And, where is the money going? I would like to be able to act rather than react. We must keep the place open!
S
arah, chair of the Sunshine Center Committee, and the Committee’s secretary, Olivia, talked almost daily about the operations of the Sunshine Center. “At least the children seem happy and well cared for,” Sarah reminded Olivia. “Yes,” Olivia agreed, “but if we cannot pay the bills and keep our help, we will not be open long to serve them. Rev. Andrew thinks everything will work out, but I am not so sure.”
Background
The Sunshine Center Center opened several years earlier when the church allowed a member to provide child care services and pay rent to use the church facilities. The church’s
References: American Institute of Certified Public Accountants AICPA . 2005. The AICPA Audit Committee Toolkit: Not-for-Profit Organizations Committee of Sponsoring Organizations of the Treadway Commission COSO . 2006. Internal Control Over Financial Reporting–Guidance for Smaller Public Companies Dervaes, J. R. 2007. Fraud’s finer points: Small organizations need internal control, part one. Fraud Magazine September/October . Ethics Resource Center. 2007. 2007 National Nonprofit Ethics Survey. Washington, D.C.: Ethics World. May, C. B., and G. S. May. 2009. Effective Writing: A Handbook for Accountants. 8th edition. Upper Saddle River, NJ: Pearson Prentice Hall. McEldowney, J. E., and T. L. Barton. 1993. Look out for Cletus William. The CPA Journal 63 12 : 44–47. McNeal, A., and J. Michelman. 2006. CPAs’ role in fighting fraud in nonprofit organizations. The CPA Journal 76 1 : 60–63. West, R., and C. Zech. 2008. Internal controls in the U.S. Catholic Church. Journal of Forensic Accounting 9: 129–156. Volume 25, No. 4, 2010 Copyright of Issues in Accounting Education is the property of American Accounting Association and its