First Community Church is the largest church in the city of Perpetual Happiness. (Yes, it's in California!) A meeting was held on Friday, November 16, to address the fact that money has been stolen from the weekly collection box during the course of the year and church leaders were getting quite concerned. At first, no one paid much attention, as the amounts were small and could have been attributed to inadvertent errors due to discrepancies between the actual count and what really was collected.
However, after 45 weeks of the continuous discrepancies, the total amount of the differences had become alarming. Eddie Wong, the controller for the church, estimated the current total as $23,399. That represents well over 5 percent of their annual collections from church members, which total about $400,000. The meeting began at 9 a.m., a time that was early for the church leaders, who often had late evening calls to make. The church staff brought doughnuts, bagels, and coffee to help get the meeting off to a good start, but it didn't work. "I want an explanation," said Allen Yuen, the executive director of the church. The board of trustees is on my back on this matter. Some of them talk about this Sarbanes-Oxley Act and our lack of internal controls.
It's all foreign to me, but I know indignation when I see it!" "I can't explain it, Allen," responded Eddie Wong. "Jennie. How about you?" Yuen asked. He was addressing Jennie Lin, the member of the executive committee of the board of trustees who was directly responsible for the count each week. Jennie seemed uncomfortable. She hesitated before saying: "I think my count is correct. I take the money given to me by Joey, put it in the safe, and then Eddie opens the safe on Monday morning. He records the cash receipts and makes a bank deposit." Eddie said, "That's right. My deposit always matches the amount of money reported by Jennie."
"That doesn't make sense," Yuen said. "Someone is getting his or her hands on the money between the collection process and recording of the amount. I trust you, Jennie, to watch over these things and the internal control matter." "Perhaps the recorded tally amount independently submitted by the church volunteers has been overstated," Jennie said. "Why would that happen?" Yuen asked. "I mean, while it could happen and it would be an honest mistake, it seems unlikely." Jennie was starting to sweat. She decided that a diversion was in order. "Maybe someone gets their hands on the collection box after the tally and before Joey gives it to me." Joey Chang was the accounting manager, who delivers the collection box and tally sheet to Jennie after each service. Joey goes to church on a regular basis and had volunteered to do the job in order to establish some level of control over the process.
At this point, Jennie lowered her head while she waited for a response. It came from Allen Yuen. "Jennie, are you accusing Joey of stealing money from the church collection box?" Jennie shook her head no. She was visibly upset. A phone call came in for Yuen, and the meeting had to break up. The group agreed to continue the discussion in two days.
In the meantime, Jennie went back to her office, closed the door, and started to reflect on what she had just done. The truth is that Jennie has been taking the money each week and giving it to a homeless shelter two blocks from the church. Some of the homeless attend church services, and Jennie has befriended many of them. She knew that it was wrong to take money from the collection box, but she thought it was for a very good cause and that the church clergy would approve. She never thought about getting caught because she told the bookkeeper to record the lower amount. Now, she feels guilty about bringing Joey into the picture.
Questions
1. Assume that Jennie Lin is a CPA. Evaluate her actions from an ethical perspective with respect to the rules of conduct of the AICPA.
2. Jennie believes that her actions were proper because taking the money from the church and giving it to the homeless served a greater good. Do you agree with her position from an ethical perspective?
3. As a member of the board of trustees of the church, what are Jennie's ethical obligations to the church? Do you think that it is more difficult to establish strong internal controls in a nonprofit such as the First Community Church, as opposed to a public or private company? Why or why not? Do nonprofits such as churches come under the rules of SOX?
4. Assume that Jennie explains why she did what she did, and, after due deliberation, Yuen fires Jennie and tells her that she must replace the money she stole from the collection box. Moreover, Yuen threatens to report Jennie to the state board of accountancy for violating its ethics rules. How would you evaluate Yuen's actions from an ethical perspective?