Case 4-7
Family Outreach
Yimei was a senior state auditor in Michigan and licensed CPA. She has been assigned the audit of Family
Outreach (FO), a non-profit social services organization that helps about 32,000 families a year with child-
raising and child-development issues, especially those considered “at-risk” families. The organization holds
workshops and programs for parents, teachers and childcare providers. The organization has an annual
budget of $3.1 million. FO employs about 30 employees and receives funds from a variety of private, city,
state, and federal grants. Yimei was in charge of the audit of FO for the city, state, and federal grants for
2013. She reports to Kwami, her supervisor in the Michigan state auditor’s office.
In reviewing the audit papers so far, Yimei noticed that $200,000 appeared in three expense accounts she
never had seen before on the books of a non-profit: parent reimbursements; entertainment expenses; and
reconciling costs. Together, the $200,000 was a material amount.
Questions
1. If you were Yimei, what ethical concerns would exist for you upon discovering the three
accounts? What is the first thing you would do upon discovering the three accounts?
Upon discovery of the three accounts, Yimei should be concerned about the justification for the
2. Assume that FO provides invoices to justify the amounts in each account. You review the
documentation and notice that each one has the same font, font size, and exact format. Being a
skeptical auditor, you are suspicious about the validity of the audit evidence. What are your
ethical and professional responsibilities given the questionable nature of the audit evidence and
your role as the lead auditor?
As a skeptical auditor, the same documentation including same font, font size and format for invoices for
three different accounts raise concerns that this is not a simple mistake but intentional misrepresentation or
embezzlement by someone at the agency. Yimei needs to determine the intent and extent of the transaction
3. We discussed the issues of accountability and transparency with respect to corporate governance
in Chapter 3. In the public sector, the chief investigative office is the Inspector General (IG) who
is accountable to the taxpayers. IG’s are supposed to detect and prevent waste, fraud and abuse
and thereby build trust in government. What would you do if you were Yimei and were told by
Kwami to drop the matter because the chief operating officer of FO is the sister of the IG? Do
you have any whistle-blowing obligations in this matter?
Yimei cannot let the matter remain unchecked. She has an ethical obligation to bring the issues out in the
Yimei has a whistle-blowing obligation as a state official in this matter. Her situation is similar to that of
Diem Thi-Le that was discussed in chapter 2 where Le blew the whistle on wrongdoing at the DCAA.
Yimei should report the situation within the state auditor’s office, the Inspector General’s office and to the
Optional Question
4. Review the accountancy law and rules of conduct in your state, and discuss Yimei’s ethical
responsibilities with respect to the facts of this case.
Different states may have requirements on how possible fraud or embezzlement is reported for