Sunshine Center: An Instructional Case Evaluating Internal Controls in a Small Organization

2010 ◽  
Vol 25 (4) ◽  
pp. 709-720 ◽  
Author(s):  
Sandra K. Fleak ◽  
Keith E. Harrison ◽  
Laurie A. Turner
Keyword(s):  
Child Care ◽  
Financial Reporting ◽  
Internal Control ◽  
Care Center ◽  
Internal Controls ◽  
Fraud Triangle ◽  
For Profit ◽  
Not For Profit ◽  
Control Framework ◽  
Internal Control Weaknesses

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.

scholarly journals Effective Internal Controls for Not-For Profit Entities

2020 ◽  
pp. 47-58
Author(s):  
Achraf Seyam, CPA ◽  
Barry Copper, CPA
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Continuous Monitoring ◽  
Internal Controls ◽  
Professional Services ◽  
Non Profit ◽  
The Public ◽  
For Profit ◽  
Not For Profit ◽  
Non Profit Organizations

The importance of internal control is clear. Effective internal control makes sure non-profit organizations to carried out their mission and objectives, such as proper use of funds and provide professional services to the public without any risk of fraud and mismanagement or breach of ethics. Through continuous monitoring of non-profit’s performance and activities, internal controls dispose of the behaviors of non-profit organizations with their objectives. Internal controls also engaged in good management and make sure to provide appropriate financial reporting by providing accurate and complete reports to the management in a timely manner and make sure the sources are correctly allocated. Internal control is also the tool to safeguard assets that make sure the organizations physical and intangible assets are protected from fraud, misused, and error. Internal control is not only able to deter and detect fraud and error but also is able to reduce the chance to risks.

Who's in Control of the Ark? A Study of Internal Controls in Operating and Auditing A Small Preschool

2019 ◽  
Vol 34 (2) ◽  
pp. 23-39 ◽  
Author(s):  
Elizabeth V. Grace ◽  
Ashley Davis
Keyword(s):  
Internal Control ◽  
Business Processes ◽  
Practical Experience ◽  
Auditor Independence ◽  
Internal Controls ◽  
Control Environment ◽  
For Profit ◽  
Not For Profit ◽  
Analytical Thinking ◽  
Financial Transactions

ABSTRACT This instructional case encourages analytical thinking about internal controls in both the operations and audit of a small, not-for-profit organization. Students examine a control environment characterized by unauthorized expenditures, lack of documentation, and missing documents. Using the COSO (2013) framework, students demonstrate understanding of business processes as they identify internal control risks and deficiencies, and recommend control improvements. Auditing students additionally apply management assertions about financial transactions and assess auditor independence. Students gain practical experience in developing flowcharts of accounting processes and writing a management letter for a familiar organization: a preschool.

scholarly journals Fraud at the Public Park Community School District

2020 ◽  
Vol 15 (1) ◽  
pp. 90-100
Author(s):  
Rania Mousa
Keyword(s):  
School District ◽  
Internal Control ◽  
Internal Controls ◽  
Public School Districts ◽  
Community School ◽  
Public Park ◽  
The Public ◽  
For Profit ◽  
Not For Profit

ABSTRACT This case study examines potentially fraudulent activities that took place in the Public Park Community School District. Students start their investigations by reading each section and answering case questions. Students analyze potentially fraudulent incidents, identify red flags, calculate potential losses, examine deficiencies in internal controls and suggest effective internal controls. Student feedback indicates the case increased their understanding of fraudulent activities, internal control weaknesses, and effective internal controls in the specific context of public school districts. The findings also highlight the importance of cultivating a strong internal control environment in not-for-profit organizations engaging in fundraising activities.

scholarly journals Internal Control Weakness and Managerial Myopia: Evidence from SOX Section 404 Disclosures

2019 ◽  
Vol 8 (1) ◽  
pp. 71-83 ◽  
Author(s):  
Amy E. Ji
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Investment Decisions ◽  
Reporting Quality ◽  
Internal Controls ◽  
Financial Reporting Quality ◽  
Section 404 ◽  
Managerial Myopia ◽  
Internal Control Weaknesses ◽  
The Impact

Problem/ Relevance: Managerial myopia is an important issue of interests to academics, practitioners, and regulators as managers have been condemned for their obsession with short-term earnings and myopic investment decisions that sacrifice firms’ long term value for shareholders. This article contributes by examining whether the quality of firms’ internal controls over financial reporting (ICFR) is associated with managerial myopia. Research Objective/ Questions: The purpose of this study is to examine whether managers in firms reporting material internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act (SOX) of 2002 engage in myopic behaviors more than those in firms without reporting ICW. Methodology: The study uses the logit regression model to investigate a sample obtained from Compustat for the period of 2005-2013. Major Findings: The study finds a positive association between internal control weaknesses reported by auditors under Section 404 of the SOX and managerial short-termism which is measured by the probability of cutting R&D expenses in the current year from the previous year. Implications: Whereas prior studies mostly examine the impact of internal controls on accounting quality, this study demonstrates the implication of internal controls beyond financial reporting quality by showing an association between internal control quality and managerial myopia. Future research may further investigate the association between firms’ financial reporting quality and managerial investment decisions.

scholarly journals Internal Controls and Operational Performance of Nonprofit Organizations

2021 ◽  
Author(s):  
Nathan R Berglund ◽  
Mikhail Sterin
Keyword(s):  
Nonprofit Organizations ◽  
Financial Reporting ◽  
Internal Control ◽  
Internal Controls ◽  
Operational Performance ◽  
Control Environment ◽  
For Profit ◽  
External Stakeholders ◽  
The Impact ◽  
Robust Evidence

This study examines the impact of auditor-reported internal control deficiencies (ICDs) on operational performance within nonprofit organizations. Contemporary studies in the for-profit environment document evidence that poor internal controls over financial reporting (ICFR) cause suboptimal operational performance. While these analyses are restricted to ICFR, the nonprofit environment allows external stakeholders to observe the effectiveness of both ICFR and internal controls over compliance. We find robust evidence of negative associations between both ICD types and two key measures of nonprofit operational performance: surplus and the charitable expense ratio. Our findings are relevant to multiple nonprofit stakeholders, demonstrating that the control environment has a pervasive impact on a nonprofit's ability to effectively execute its charitable mission.

The Adoption and Consequences of COSO 2013

2021 ◽  
Author(s):  
Amanuel F Tadesse ◽  
Gina Cavalier Rosa ◽  
Robert J. Parker
Keyword(s):  
Information Technology ◽  
Internal Control ◽  
Internal Controls ◽  
Lower Probability ◽  
Control Problems ◽  
Timely Manner ◽  
Sarbanes Oxley ◽  
Enterprise Risk ◽  
Control Framework ◽  
Internal Control Weaknesses

COSO has developed frameworks for firms to improve their internal controls with the objective of reducing fraud and managing enterprise risk. The frameworks are widely used by firms and their auditors to comply with the internal control requirements of the Sarbanes-Oxley Act (SOX). We investigate two issues involving the most recent COSO internal control framework (COSO 2013): the determinants of a firm's decision to adopt it in a timely manner; and the consequences of adoption on internal controls. In our sample, firms that report internal control problems under SOX 404, especially firms with information technology (IT) problems, are likely to be late adopters. Regarding the consequences of adoption, for late adopters, we find that firms using the revised COSO framework have a lower probability of reporting weaknesses in IT-related controls. We also find evidence that COSO 2013 adoption is helpful in remediating internal control weaknesses.

scholarly journals Heritage Treasures And Gifts: Improving Controls And Systems In A Not For Profit Environment

2011 ◽  
Vol 4 (2) ◽  
pp. 89
Author(s):  
Robert C. Zelin II ◽  
Jane E. Baird
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Narrative Form ◽  
Accounting Systems ◽  
For Profit ◽  
Class Project ◽  
Not For Profit ◽  
Gift Shop ◽  
The Gift ◽  
Previous Group

Not-for-profit organizations often rely heavily on volunteers to help them achieve their goals on very limited budgets. Often, these organizations are especially in need of volunteers with specific skills not possessed by the average volunteer. Such is the case with the County Historical Society (The Society), which is in need of help with certain aspects of its museum gift shop operations. Most of the volunteers and staff of the organization are avid history buffs, but know little about running a business and even less about accounting and systems related processes. Therefore, the organization has approached your professor to ask for your assistance. The Society would like to seek the benefit of your knowledge of accounting systems and internal controls to help it improve operations and financial reporting for the gift shop. A previous group of students has documented the operations in narrative form as part of a class project. The Society would now like specific recommendations for ways to improve internal controls. It would also like to begin to upgrade its systems for inventory tracking, starting with its records for consignment inventory.

The Effect of Human Resource Investment in Internal Control on the Disclosure of Internal Control Weaknesses

2013 ◽  
Vol 32 (4) ◽  
pp. 169-199 ◽  
Author(s):  
Jong-Hag Choi ◽  
Sunhwa Choi ◽  
Chris E. Hogan ◽  
Joonil Lee
Keyword(s):  
Human Resource ◽  
Financial Reporting ◽  
Internal Control ◽  
Internal Controls ◽  
Listed Firms ◽  
Resource Investment ◽  
Reporting Requirement ◽  
Internal Control Weaknesses ◽  
The Individual

SUMMARY This paper investigates the effect of human resource investment in internal control over financial reporting on the disclosure of internal control weaknesses at both the firm and the individual department level. Using a unique reporting requirement for Korean-listed firms, this study uses the ratio of the number of employees involved with the implementation of internal controls (hereafter, IC personnel) to the total number of employees of the firm as a proxy for a firm's human resource investment in internal control. We find that the proportion of IC personnel and the change of the proportion within the firm and several key departments are negatively associated with the disclosure of internal control weaknesses. We also find that a change in IC personnel is positively associated with the likelihood of remediation of the internal control weaknesses. These findings provide valuable insights into the role of human resource investment in determining the strength of a firm's internal controls over financial reporting.

The Severity of Internal Controls over Financial Reporting Deficiencies: Differences among Types and Industries

2014 ◽  
pp. 55-77
Author(s):  
Tatiana Mazza ◽  
Stefano Azzali
Keyword(s):  
Information Technology ◽  
Financial Reporting ◽  
Internal Control ◽  
Service Industry ◽  
Listed Companies ◽  
Internal Controls ◽  
Service Companies ◽  
Finance Industry ◽  
Material Weaknesses ◽  
Fixed Assets

This study analyzes the severity of Internal Control over Financial Reporting deficiencies (Deficiencies, Significant Deficiencies and Material Weaknesses) in a sample of Italian listed companies, in the period 2007- 2012. Using proprietary data the severity of the deficiencies is tested for account-specific, entity level and information technology controls and for industries (manufacturing and services vs finance industries). The results on ICD severity is compared with one of the most frequent ICD (Acc_Period End/Accounting Policies): for account-specific, ICD in revenues, purchase, fixed assets and intangible, loans and insurance are more severe while ICD in Inventory are less severe. Differences in ICD severity have been found in the characteristic account: ICD in loan and insurance for finance industry and ICD in revenue, purchase for manufacturing and service industry are more severe. Finally, we found that ICD in entity level and information technology controls are less severe than account specific ICD in all industries. However, the results on entity level and information technology deficiencies could also mean that the importance of these types of control are under-evaluated by the manufacturing and service companies.

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