Case specifics: Rich has worked as the textbook manager at a publ...

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Case specifics:
Rich has worked as the textbook manager at a public university since 1999. When the previous bookstore manager left in 2002, Rich applied for his job. University administrators liked Rich because he often worked late, as did the administrators. Rich also rarely missed work for either illness or vacation. Thus, the human resources (HR) department did not follow standard hiring procedures such as checking references. Instead, the HR department approved Rich as the new Bookstore Manager within days of the previous manager’s departure. Excitedly, Rich accepted the promotion and even agreed to continue working as the textbook manager despite the fact he would not be paid for these extra responsibilities. The Dean of Students, who monitors bookstore operations, felt this would be a good opportunity for both Rich and the university.

Rich has managed the bookstore for the past three years without any issues, which has been a relief since you have lost two internal auditors on your team. In addition, the arrival of your baby 6 weeks early caused you to fall way behind on regularly scheduled internal audits.
The university is in the process of applying for a loan to fund an expansion. Several lenders expressed interest in funding the project and requested audited financial statements. Fortunately, they have agreed to accept internally audited financial statements in exchange for a 1.25% higher rate of interest.
As a member of the internal auditing team of this public university, you are responsible for providing the internally audited financial statements. To get started, you requested a reconciliation of the bank deposits and checks logged in by Pam Becker, the accounts receivable clerk. You may find the Policies and Procedures Manual for Accounting & Financial Control and Internal Controls for Small Organizations useful.

After reviewing the reconciliation for the past quarter, you are in a quandary. Several retail items from a major supplier are on clearance and the paper trail leads to a check from the supplier that does not appear on any bank statements. You recall the previous bookstore manager telling you that in situations where merchandise is put on clearance, the supplier will often write a check to help offset bookstore losses.

You decided to call Rich Martin, the bookstore manager. Rich was your stepson before you divorced his mother twenty-five years ago, but you see no reason to inform the university of this past relationship. Rich is on his vacation in St. Thomas, U.S. Virgin Islands, but you are able to contact him via cell phone. Rich confirms the supplier did send a check, but because he was in a rush to start his vacation, he failed to deposit the check. However, he does remember locking it in his desk for safekeeping. Rich said not to worry; he would deposit the check as soon as he returned from vacation.

There was some nervousness and hesitancy in Rich’s voice that made you uncomfortable with his explanation. In addition, you know that protection of assets is a critical responsibility of internal auditors. You may find the Internal Auditing Handbook and the Risk Based Internal Auditing resources helpful in completing your investigation. Rich’s hesitancy reinforces your decision to retrieve and deposit the check. You call the security desk and request that Rich’s desk be unlocked with the master key. You perform an exhaustive search, but do not find the check. You did, however, find an envelope in the very back of the bottom drawer; it contained $80,000 in cash!

After a thorough investigation, the internal audit team determined that most of the money stolen by Rich is from textbook buy-back programs. It is common practice for textbook resellers to arrive on campus twice a year (at the end of each fall and spring semester) to pay wholesale prices to buy back textbooks faculty members and bookstores no longer need. In his position as the textbook manager, Rich took full advantage of this opportunity. What remains a mystery is how Rich could have collected $80,000 from what typically gives rise to a very small amount of money.

The University had outsourced the operations of the textbook buy-back program to Booker’s, Inc., a small firm out of Baltimore. Rich was in charge of handling all interactions with Booker’s, Inc. At the end of each buyback period, Booker’s, Inc. wrote a commission check to the university for allowing them to conduct the program on campus. Peter Justen, one of Booker’s representatives who was also on Rich’s bowling league, hand delivered the checks directly to Rich.

Fortunately, Rich’s favorite daughter-in-law Rebecca Knownott, CPA worked in the business office of the university. The mother of a young child, Rebecca chose to work as a bookkeeper even though she was a CPA because she did not want to work beyond 40 hours per week, which is typically required of CPAs. Rebecca never questioned Rich when he asked her to cash the checks, claiming he needed the cash to pay refunds to students for sales returns. Although Rebecca wondered why the bookstore would have so many refunds, she never questioned her father-in-law because it would displease her husband and Rich was paying the childcare expenses for her daughter Tabitha.

In addition, the bookstore sold textbooks to Booker’s, Inc. when professors no longer needed them. Peter also hand delivered these checks to Rich. Rebecca cashed the checks for her father-in-law, again without questioning him. For the last two years, during which Rich served as both the bookstore and textbook manager, Peter had been paying the university in cash instead of checks. The total of the missing funds from the buy-back process amounted to $372,586.46, and the total missing funds for the sale of wholesale texts was $629,482.32.

The checks payable to the university for the Athletic Department’s textbooks were also given directly to Rich. He never accounted for the checks nor did he transfer the funds to the Athletic Department. The total of missing funds to the Athletic Department was $340.520.67.
After Rich received and cashed the checks from Booker’s, Inc., he failed to record the transactions in the university’s accounting system; keeping the cash for his own personal use.

I. Steps to Completion
1. Thoroughly examine the AICPA’s Code of Professional Conduct.
2. Identify all stakeholders in the case and explain what each stakeholder has at stake. A stakeholder could be an owner, employee, shareholder, taxing authority, community, investor, etc.
3. List and describe all ethical conflicts in involved in this scenario
4. Write a 20-25 page paper that responds to the following ethical considerations.

a. Part 0 of the AICPA Code of Professional Conduct refers to professional conduct of all CPAs. Focus on the following topics and describe how they relate to the specifics on the case.
i. 0.300.020: Responsibilities
ii. 0.300.030: The Public Interest
iii. 0.300.040: Integrity
iv. 0.300.050: Objectivity and Independence, and
v. 0.300.060: Due Care

b. Part II of the AICPA Code of Professional Conduct: Members in Business refers to threats that fall into one or more of the following broad categories. Discuss the threats relevant to the specifics on the case.
i. Adverse interest threat
ii. Advocacy threat
iii. Familiarity threat
iv. Self-interest threat
v. Self-review threat, and
vi. Undue influence threat

The AICPA Code of Professional Conduct discusses safeguards and defines safeguards as “Safeguards may partially or completely eliminate a threat or diminish the potential influence of a threat” (AICPA Code of Professional Conduct, p. 134). Suggest safeguards that could have mitigated the risk of threats in the case.

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These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.

This report explores a case study on Ethics, especially with respect to the circumstances that AICPA members in business, the Internal Auditor and Rebecca Knownott, CPA, found themselves in. This report on the case study covers four parts, to wit: the identification of stakeholders whose interests are affected by the ethical lapses of individuals and/or entities mentioned in the case, enumeration of ethical conflicts not only as defined by the AICPA Code of Ethics (which exclusively pertains to its members only) but also conflicts of interest in general, a broad discussion of the principles guiding professional conduct of all AICPA members and forms of threats that relate to AICPA members in business, and a conclusion where major recommendations are provided to revamp the existing safeguards of the organization, namely the Public University.
Stakeholders
Who are stakeholders? This question is essential to ask with respect to risk assessment for audit purposes. Essentially, failure to manage effectively and efficiently risks inherent in a business will adversely impact its stakeholders. Any person, organization, social group, or society that has an interest in the conduct and outcome of a firm’s business affairs is a stakeholder (Marhsall, McManus, Viele, McCartney, & Van Rhyn, 2008). In project management, the project leader, senior management of the company that owns the project, project team members, and resource managers, among other stakeholders, are interested in the management and eventual outcome of a project (Landau, 2017). Going to the case at hand, which we shall refer in succeeding discussions as the Rich Martin case, a lot of parties have a stake in the running of a bookstore, especially in a public university. The list of stakeholders will be longer, the more levels will be employed of the analysis that is necessary to evaluate impacts of the negative circumstances in the case.
The Public University
Ultimately, the Public University, as a separate economic entity, will suffer from any unfavorable bookstore incidents. In particular, the assets (the most obvious of which is cash) of the Public University include the resources of the bookstore; hence, any asset wasted by the bookstore is asset of the former wasted.
The Public University Administrators
The administrators (referring to those at the very top, similar to an executive management of a corporation) are also stakeholders of the operations of the bookstore. Being the group that is ultimately responsible for all of the departments or divisions or operating units of the Public University, they will be held accountable for misappropriation of assets. In a different perspective, the administrators are also stakeholders being key decision-makers over the Rich Martin case.
The Dean of Students
Hierarchy-wise (or with respect to chain of command within the University), the Dean of Students is a major stakeholder of the bookstore operations, since the former is the immediate superior of Rich Martin. Aside from accountability, the Dean will be evaluated for various reasons, one of which is the appropriateness of decisions made in hiring Rich Martin and appraising his performance as a bookstore manager ever since he assumed the role.
The Human Resources Department
As the functional unit of the Public University that is assigned with the overall responsibility of recruiting and training employees, and evaluating their performance (but appraisal may be in an indirect way, depending on the setup within the University), the Human Resources Department has a stake in the business of the bookstore in terms of assessing the effectiveness and efficiency of the overall human resources management strategy; when the investigators (a fact-finding committee) will perform the necessary procedures, they will definitely look into the quality of the hiring process involved in getting Rick Martin onboard.
The Internal Audit Department (or the Audit Committee)
This internal party has a stake in the affairs of the bookstore because it has the ultimate responsibility of assisting the Public University in achieving one of its objectives - managing risks to acceptable levels (Griffiths). Additionally, the department has to communicate its findings to the responsible authorities within the Public University as well as provide an assessment of the levels of risk and necessary recommendations to mitigate risks at above acceptable levels. Thus, the department has a special stake of knowing as accurately as possible the details of the Rich Martin case.
The Expansion Project Lenders (and other Creditors in general)
The providers of capital through debt (creditors) have more at stake than some of the previously mentioned stakeholders because they extend credit to the University. The specific group of lenders who will bid to grant loan to the University will be exceptionally interested in acquiring accurate information regarding liquidity and solvency. Additionally, other creditors (currently and in the future) have a stake in the University in terms the latter’s ability to pay what it owes them (current creditors) and ability to service general debt in the future given that at least $1 million...

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