CASE 3.3
UNITED WAY OF AMERICA
Synopsis
Unfortunately, embezzlement and other fraudulent schemes are rife in the charity “industry.”
More than any other segment of our economy, the charitable sector has been plundered by con artists
and other miscreants in recent decades. This case examines several recent embezzlement schemes
that have impacted the United Way organization. A major focus of the case is the extremely weak
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United Way of America—Key Facts
1. United Way is the largest charitable organization in the United States.
5. Several other fraudulent schemes involving large charities have also been reported in recent
years.
6. The public reports of the embezzlement schemes within United Way had a chilling effect on the
organization’s fundraising ability.
7. A key factor contributing to the embezzlement losses suffered by United Way has been the
organization’s extremely weak and, in some cases, nonexistent internal controls.
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Instructional Objectives
1. To demonstrate the importance of a reliable internal control system for organizations of all
types.
2. To identify fundamental internal controls for cost-constrained organizations.
Suggestions for Use
Your students will likely be very familiar with the United Way and its annual fundraising
campaigns. I have found that students particularly enjoy discussing cases that revolve around
organizations with which they are very familiar.
This case is not intended to be a primer on not-for-profit audit issues, although the final case
question requires students to identify unique or uncommon audit risk factors for charitable
Suggested Solutions to Case Questions
1. Not surprisingly given their nature, charities are extremely motivated to minimize their
expenses, including accounting and control-related expenses. So, the issue of “cost–effectiveness” is
particularly critical when these organizations are creating their internal control systems. Listed next
are examples of internal controls that are particularly critical for charitable organizations to adopt
and that are generally modest in terms of costs.
—Background checks for prospective employees
—Bonding of employees
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2. This question typically spawns a healthy debate among students. My experience has been that
most students do not believe that CPAs have a “responsibility” to provide professional services to
charities on a reduced fee basis. In discussing this issue, I typically point out that as professionals
CPAs should adopt a public service mentality—sometimes a student will raise this issue before I
3. Again, you may want to refer your students to the accounting and audit guide for not-for-profit
organizations when responding to this question. Listed next are several unique or uncommon risk
factors associated with audits of charitable organizations. [As is true for audits of any type of
organization, audit risk factors identified during the planning phase of an engagement should be
considered when developing the audit NET (nature, extent, and timing of audit tests) for the given
client.]
—Charities employ different accounting rules than for-profit entities.
—As demonstrated by this case, charities typically have weak internal control systems.
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