Case 4-4
First Community Church
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 had 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 differences had become alarming. Eddie Wong,
the controller for the church, estimated the total was now $23,399. That represents well over 5 percent of
their annual collections from church members totaling 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 donuts, 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 are
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 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 is 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 volunteered to do the job in order to establish a control in the process.
At this point Jennie lowered her head while she waited for a response. It came from Alex Yuen. “Jennie,
are you accusing Joey of stealing money from the church collection box?”
Jennie shook her head as if to say 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, Alan
Yuen said he’d call Joey Ching and ask him to attend the next meeting. 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 had
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 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 since she told the bookkeeper to record the lower
amount. Now, she feels guilty about bringing Joey into the picture.
NOTES
This case looks at challenges facing many non-profits, using volunteers to provide internal controls.
Sometimes the volunteers engage in activities that ordinarily they may not do but can get away with it in a
non-profit because of poor oversight and weak internal controls.
Questions
1. Assume Jennie Lin is a CPA. Evaluate her actions with respect to the rules of conduct of the
AICPA.
As a CPA, Jennie is obligated to follow all sections of the AICPA Code of Professional Conduct, except for
Independence. Jennie has failed to exercise due care in carrying out her obligations by diverting church
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?
Jennie is using an ends justifies the means approach to ethical decision-making. However, under Rights
Theory the means used to accomplish one’s goal is just as important, maybe more so, than the goal itself. If
we view Jennie’s actions as proper, what about someone who takes money from the cash register of a
3. As a member of the board of trustees of the church, what are Jennie’s ethical obligations to the
church? Do you think it is more difficult to establish strong internal controls in a nonprofit such as
First Community Church as compared to a public or privately owned company? Why or why
not? Do non-profits such as churches come under the rules of SOX?
Jennie’s ethical obligations to the church are to act meet her fiduciary obligations as one responsible for
church funds. It is more difficult to establish strong internal controls in a nonprofit as most of the work is
The church has four counts of the money (Joey, Jennie, Eddie, and the bank) but it is not clear who does a
reconciliation of the counts. All counts of cash should be done in the presence of a witness. Joey should do
the first count in the presence of a witness and make a count sheet and triplicate copy bank deposit slip. The
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?
From a justice perspective, Yuen is having Jennie reap the consequences of her actions. This illustrates
Even though the shelter is a good cause, the church leaders have a right to decide whether the shelter is