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Read the Case Study: Ethical Choices at Choice House
- Describe the case briefly and the essential accounting issues at stake at Choice House.
- Using the COSO Internal Control—Integrated Framework Executive Summary, describe the internal control weaknesses.
- Provide your recommendation for how to tighten up the controls for Choice House based on the COSO summary. Provide your recommendations for Ashley to move forward with this difficult situation. Apply any relevant ethical theories in your recommendation.
Requirements:
- Your presentation must answer the questions with speaker notes in the slides. The presentation should be three slides (one slide for each question) not including title and reference pages.
- Use terms, evidence, and concepts from class readings.
You need to cite at least three sources for this assignment. The case study can be a source.
Reference:
Weller, P. M. & Poulson, L. L., Nienhaus, B. J. (2017). Ethical choices at Choice House. IMA Educational Case Journal, 10(3), 1-4.
ISSN 1940‐204X
Ethical Choices at Choice House
Dr. Paula M. Weller
Elon University
Dr. Linda L. Poulson
Elon University
INTRODUCTION
placed in local schools, and childcare is provided when
needed. Each client must obtain a job and save $1,750 before
graduating from the program. A client can even complete her
high school diploma or take college classes at a local college.
The program takes 12 to 18 months to complete. The overall
goal of the program is to help mothers make better choices
for themselves and their families now and in the future.
Although the program has a 95% success rate in keeping
clients out of prison, it is expensive to operate. There are
three houses located in the northern, central, and southern
parts of the state. Choice House board members are from
cities in which the houses are located. Each house can
accommodate up to 12 clients and their children. Because
it is difficult for volunteer board members to oversee the
program operations, each house has a full‐time program
director and several case managers, depending on the
number of clients in the house. There are also full‐time
employees at Choice House, including an executive director,
an administrative assistant, a controller, and a publicity/grant
writer. Beth Martin, the executive director, works out of her
home because she would have to travel across the state. The
other employees work at the central house location and are
supervised by Beth, who visits each location periodically.
Beth reports only to the board of directors at quarterly
meetings or for specially called meetings.
Joan Tanner needs answers. She has been on the board of
directors for Choice House for three years. She was originally
attracted to the nonprofit’s mission of providing women an
alternative to prison. Although the program receives funds
from regional foundations, special grants, and individuals,
the majority of its funding is from the State Prison System.
The System funds a total of $1 million annually but does
not cover the budget for the entire program statewide. With
concerns for potential state budget cuts, Choice House needs
to find other funding opportunities and minimize expenses
while maintaining a quality program. Joan is on the finance
committee and is questioning some of the expenses and lack
of revenue for the year. She asks Controller Ashley Parsons,
CMA® (Certified Management Accountant), to investigate
several items and provide a summary of her findings.
Knowing that Joan is well connected with several regional
foundations and influential in the central part of the state,
Ashley must respond quickly and accurately to her request.
Ashley’s major challenge is providing honest answers without
jeopardizing her job or future funding for Choice House.
THE CHOICE HOUSE PROGRAM
If a judge agrees, a woman—Choice House’s client—charged
with a nonviolent crime may serve her sentence at Choice
House along with her young children. This keeps families
together and strengthens their bond during a turbulent
time. A client is required to complete courses in personal,
parenting, and financial skills, in addition to chores in the
house and caring for her children. School‐age children are
IMA E D U C A TI O NA L CASE JOURNAL
Dr. Brian J. Nienhaus
Elon University
THE CHOICE HOUSE QUESTIONS
The finance committee of the board of directors met last
week to review the current year’s revenues and expenses.
The committee asked Ashley to attend its meeting and
explain individual revenue and expense items. Questions
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As for outstanding grants, Devon explained that he
submitted five grants in the fourth quarter of the year. Two
of the five were at the recommendation of the board and
were very promising. Two others were grants that Devon
discovered that related to children’s issues for which the
program qualified. The last grant application was to a
foundation located in Beth’s hometown. She was the only
person from Choice House to have met with representatives
of this foundation. None of the five grants had yet been
approved. If they were approved, they would more than
make up the shortage in funds for the program this year.
Unfortunately, it would be a couple more months before
Choice House would hear anything about the grants. When
asked about Devon’s use of office supplies, he said that
most of these expenses were due to publicity brochures and
small gift items that Beth requested for her trips to the state
legislature and for other unspecified publicity activities.
Before Ashley asked Beth about the office supplies
purchases, she decided to look at the travel expenses and
equipment rentals in order to review all of these expenses
at once with Beth. All employees, except Beth, incur travel
expenses only for local errands or annual training courses.
Employees fill out expense reports noting the date, purpose
of the travel, mileage, and receipts for any expenses paid. All
expense reports, except for Beth’s, are submitted for review
and approval by a supervisor. No one reviews and approves
Beth’s expense reports. Beth lists at least five trips per month
to the state legislature. Since Beth lives in the southern part
of the state and the state legislature is located in the northern
part of the state, she incurs many motel, meals, and mileage
costs. None of the costs is excessive; the mileage is for only
two‐way trips, the meals are usually at fast food restaurants,
and the motels are moderately priced chains. The only
problem with Beth’s expense reports is that they contain
no details of the purpose of the trips. It is understandable
that Choice House wants a strong connection with the state
legislature since the majority of the program funding is from
this source. Personal contact with the representatives helps
the legislature remember the program and feel vested in
its success. Except for a few meetings with the foundation
mentioned previously and an occasional visit to one of the
houses, the rest of Beth’s travels are to the state legislature.
Ashley checks with the administrative assistant, Rachel, for
any available details, because she handles Beth’s calendar.
Rachel did not know which representatives Beth had visited,
but she mentioned that she thinks Beth is a consultant for
another nonprofit in the state capitol.
arose about the lack of revenue from sources other than the
System. When Joan joined the board three years ago, the
System funds represented about 80% of Choice House’s
revenue, and the remaining 20% were non‐System funds.
In the ensuing three years, non‐System funds have declined
approximately 80%. Beth, who was hired two years ago,
had earned a reputation for raising large amounts of cash at
nonprofit organizations at which she used to work. Ashley
was asked if there were any grants awarded that had not yet
been received. Ashley was not aware of any but suggested
that she could confirm this with Devon, the grant writer, or
Beth. Generally, the committee was pleased with efficiency
of the houses. Expenses for food, utilities, and personal
items for the clients appeared reasonable and close to the
annual budget. There was only one house expense item that
seemed unusually high: rental equipment. This expense line
for all the houses was $11,000 over budget. Ashley explained
that two houses signed a new copier lease at the beginning
of the year. Joan asked Ashley why such expensive copiers
were needed, who approved the leases, and how long the
leases were. As for administrative expenses, the committee
had some questions:
1. Were Beth’s salary and benefits in line with executive
directors with other nonprofits similar to Choice House?
2. Why was the office supplies line $7,500 over budget?
Who was using the supplies and for what projects?
3. Were the travel and entertainment expenses properly
documented? Why were these expenses $6,250 over
budget? Who was incurring these expenses?
As the chair of the finance committee chair, Joan asked
Ashley to provide a summary of her findings to these questions
and offer recommendations in a week. Joan suggested writing
a memo and sending it as an e‐mail attachment to her to share
with the other committee members.
ASHLEY’S FINDINGS
Beth sent a summary of grant proposals to Ashley the
day after the finance committee’s meeting. Her summary
showed five grants that she believed should be recorded as
receivables on the financial statements. Since it was the end
of the year, Ashley thought this was an opportune time to ask
Devon about the grants and not alert him to any concerns of
the finance committee. Ashley also planned to ask about his
frequent use of office supplies.
I M A E D U C AT I O N A L C A S E J O U R N A L
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ASSIGNMENT QUESTIONS
A review of the equipment rental category confirmed
Ashley’s comments to the finance committee. The overage was
due to the leasing of two copiers for five years. Each house is
required to prepare daily reports on the clients for the program
and for the prison system. Other records are required for social
services, employment searches, employee time sheets, and so
on. During the year, Ashley suggested to Beth that most of this
could be handled via Microsoft Word documents e‐mailed to
the administrative assistant and printed out only once at the
central house. Beth replied that since the program needs high‐
quality brochures, leasing the copiers saves on outside printing
costs. She requested that a reliable, top‐of‐the‐line copier be
leased at the central house for the administrative staff and at the
southern house for her use. The copier leases were negotiated
and signed by the program director of the southern house, a
close friend of Beth’s.
Choice House belongs to a consortium of nonprofits.
Ashley contacted the consortium to help answer the finance
committee’s question about Beth’s salary and benefits. After
Ashley provided Choice House’s membership number,
she explained that she needed to know if Beth’s salary of
$70,000 and benefits of $7,000 were comparable to salaries
and benefits of other executive directors in the area. The
consortium representative replied that they were within
the range and asked if she could include Choice House’s
information in the consortium’s database. Because Ashley
thought that other nonprofits probably provided this
information, she agreed to do so.
Before Ashley could summarize her findings for the
finance committee, Beth stopped by the central house to
meet with Ashley. Apparently, Rachel had told Beth that
Ashley was questioning items on Beth’s expense reports.
Beth wanted to clear up any questions that Ashley might
have had. Ashley explained that more details about the
meetings would be needed to meet Internal Revenue
Service documentation requirements. Beth replied that she
could not remember all the specifics and to just put down the
names of the representatives from the three house locations.
Ashley also asked if some of the costs should be covered by
other nonprofits that Beth consulted for at the state capitol.
At this point, Beth became defensive and curtly replied:
“I am your boss. You answer to me. My trips to the state
capitol help Choice House stay visible. If I take care of other
business while I am there, this is personal and is no business
of yours. That is all you need to know. If you have further
questions about any activities at Choice House you ask me
first.” Beth then said she had a lunch appointment and had
to leave. Ashley was stunned. She wonders what to do now.
I M A E D U C AT I O N A L C A S E J O U R N A L
1. Prepare a memo to Joan from Ashley, sharing Ashley’s
findings for all five of Joan’s questions (i.e., grants, Beth’s
compensation, equipment, supplies, and travel and
entertainment expenses). Ashley should also send a copy
of the memo to Beth, to keep her informed. A grading
rubric is provided in Appendix A for memo content and
format requirements.
2. Several ethical issues and internal control weaknesses
exist in this case. To make Joan aware of these items at
a follow‐up meeting, prepare the following discussion
documents:
a. In the first document, identify any internal control
weaknesses related to Joan’s five questions. Use
COSO’s Internal Control—Integrated Framework
Executive Summary” (see www.coso.org/
Documents/990025P‐Executive‐Summary‐final‐
may20.pdf) to note which of the five components of
internal control are lacking at Choice House. Also
include your recommendations for improving each
situation. Reference which principles of the COSO
Framework would be useful in making your point.
b. In the second document, identify and discuss possible
ethical issues in the case. Support your answer with
the IMA Statement of Ethical Professional Practice,
assuming that all parties are expected to adhere
to these standards (see www.imanet.org/tools‐and‐
resources/ethics‐center).
ABOUT IMA® (INSTITUTE OF MANAGEMENT ACCOUNTANTS)
IMA®, the association of accountants and financial professionals
in business, is one of the largest and most respected associations
focused exclusively on advancing the management accounting
profession. Globally, IMA supports the profession through
research, the CMA® (Certified Management Accountant)
program, continuing education, networking and advocacy of the
highest ethical business practices. IMA has a global network of
more than 85,000 members in 140 countries and 300 professional
and student chapters. Headquartered in Montvale, N.J., USA,
IMA provides localized services through its four global regions:
The Americas, Asia/Pacific, Europe, and Middle East/India.
For more information about IMA, please visit www.imanet.org.
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