Question

Cody Chambers agreed to help his fraternity obtain sponsors for its annual charitable event to be held during Homecoming week. He accepted this responsibility at the recommendation of last year’s fund‐raiser, who told Cody that the task would require approximately 10 hours of time and would likely result in total sponsorships of $1,000. After spending approximately 10 hours calling on previous sponsors, Cody felt that he had hit a brick wall. For many reasons, most of last year’s sponsors were unwilling to continue their involvement with this annual fund‐raiser. Cody needed to look for additional sources of funding. He spent several hours researching potential new contributors and finally located a database containing a list of businesses within the local zip code. Since the list included email addresses, Cody developed a letter of request and e‐mailed it to all these businesses.

The response was overwhelming. Cody collected over $3,000 from this new pool of business contacts. While compiling the checks received to turn over to the fraternity treasurer, Cody noticed that one business had made its $200 check payable to Cody personally.

Rationalizing that the additional time he had spent on the project and the success he was able to achieve were worthy of compensation, Cody decided to keep this one check. He wrote a letter of acknowledgment to the donor and deposited the $200 in his personal account.

 

Required:

a. Do you think Cody’s actions were justified? What would you have advised him to do in this situation?

b. What internal control activities could the fraternity have implemented in order to prevent Cody’s actions?

c. Can you think of a detective control that could uncover the omission of the $200 check?

Answer 1

a.

No, Cody’s actions were not justified because he did not use the donated funds for their intended purpose. Since Cody represented to the donors that the monies were to be used for a charitable purpose, he had an ethical obligation to fulfill that commitment. Even though he invested more time than he planned, he knew that his efforts were not to be compensated. This is a variation of an employee fraud. As a representative of a charitable cause, he carried out a cash receipts theft for his personal gain.

b.

The fraternity should have required its treasurer to handle the cash receipts related to this fundraising campaign. This would separate the custody of the cash receipts from the recordkeeping that Cody was conducting.

c.

A review of all receipts – or in this case, acknowledgement letters – could be performed and reconciled to the cash contributions records. Unless Cody concealed the letter written to the donor of the $200 that he stole, such a reconciliation procedure would uncover the difference.

 Unless Cody concealed the letter written to the donor of the $200 that he stole, such a reconciliation procedure would uncover the difference.