Embezzlement at the Grandview Community Recreation Association

Lawrence Chui

Diane M. Matson

University of St. Thomas

The Board of Directors

You learn more about the Board of Directors as you start the investigation. The executive director, Quentin Macintosh, started working part-time for GCRA after retiring from a full-time career as a salesperson. A widower, Quentin enjoys spending time with his grandchildren, who are involved in GCRA's baseball activities. The president, Greg Andres, is an attorney with

his own law ofce. He is a married father of three and enjoys volunteering because his children are involved in many sports activities. Vice-president Brittney Wheeler is a single mother and grade school teacher with two children, who are in the baseball program. Robert Norwalk, the treasurer, recently married his third wife. He is currently working for a temporary

agency, as his previous managerial position with a mid-sized rm was eliminated due to a merger and acquisition. His three children from his previous marriages participated in sports activities when they were younger. Annemarie Karon, a Board ofcer, is retired from an administrative job with the city. She wants to be involved because her four grandchildren are starting the T-ball program. Jess Daniels, the paid part-time ofce manager, attends college full-time. As a teenager, she was very active in soccer and umpire training.

The Internal Controls

Internal control refers to procedures and policies, as well as certain activities, established by an organization to safeguard assets and records, assign responsibility and accountability, accurate nancial statements, and ensure compliance with laws, contracts, and regulations. Many control activities are important, but in the context of GCRA, you decide to focus on two

important control activitiesseparation of duties and independent checks on performanceand to determine how these control activities operate at GCRA.

To achieve effective segregation of duties, no one person should have responsibility for authorization, accounting, and custody. Potential problems could arise if one person has control over any two of the preceding functions. At GCRA, the part-time executive director, Quentin Macintosh, and the Board president, Greg Andres, are in charge of authorization. They authorize the payment of checks by performing a brief review of the checks and supporting documentation.

the volunteer treasurer is in charge of accounting. He prepares the monthly accounting documents and the quarterly and annual nancial statements and also les the tax returns. Jess Daniels, the part-time ofce manager, maintains custody of the checkbook by keeping it locked up when Robert does not need it to write the checks. Quentin conducts independent checks on performance, in a general sense, and addresses any questions or problems brought up by the volunteers. As required, Annemarie must review the schedules for the playing elds that Greg prepares. Mistakes in scheduling the playing elds are difcult to correct, so this review is important. Jess is responsible for reviewing the bank statements and reconciling the checking account. It appears, however, that the review and reconciliation are not completed on a timely basis.

The Fraud Triangle

A fraud triangle is a useful tool for analyzing situations in which fraud has occurred or is suspected or where it could occur.1 There are three parts to the fraud triangle: motivation, opportunity, and rationalization. Motivation is the reason the perpetrator (a person or an organization) has for beginning the fraud; it is a real or perceived nancial pressure or need. For an

individual, for example, motivation could be supporting an elderly parent, experiencing a divorce, or suffering from drug addiction. Opportunity is the way in which the perpetrator can commit the fraud without being detected. An opportunity, for instance, could be a weak separation of duties or a supervisor who does not understand the work of subordinates. Rationalization

is the self-justication that explains committing fraud. Possible rationalizations are a belief that stolen money is a loan and will be paid back or is a way to ''get even'' for not receiving a pay raise.

Some Characteristics of a Not-For-Prot Organization

A not-for-prot organization (NFP) faces some challenges not typically faced by large for-prot organizations. An NFP will have a Board of Directors to provide oversight, as does a for-prot corporation. The members of a Board at an NFP, however, may not be familiar with accounting or internal controls, or, if they are, these areas might be neglected as the NFP

focuses on its core services. In addition, the Board may not have an ethics policy or an audit committee. Such an organization will most likely rely on volunteers to do much of the work, and these volunteers may not be familiar with nancial oversight.

Moreover, conicts of interest among executives, Board members, suppliers, and beneciaries may not be addressed (Ho 2010; Zac and De Armond 2015).

Donations are essential for the operations of the NFP, and it is possible that a major donor will come to wield substantial inuence and possibly override the wishes of the Board members. An NFP may hesitate to report suspected fraud because it does not want bad publicity. The concern is that if donors hear about such a nancial loss, they will not contribute in the future. In addition, as

As the result of such a situation, the Board may fear losing the organization's important tax-exempt status (Baker Tilly 2016).

4. Research embezzlement and larceny. How are they different from each other? Which problem appears to be present in this case? What can organizations do to prevent or minimize embezzlement and larceny?

5. What recommendations would you make to GCRA's Board of Directors?

6. What are some reasons that small not-for-profit organizations are more susceptible to fraud than are other larger and/or for-profit organizations?

7. Are there any other issues to consider? If so, please discuss these.