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(R) (Certified Management Accountant) program, continuing education, networking, and advocacy of the highest ethical business practices. IMA has a global network of more than 80,000 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/Africa. For more information about IMA, please visit www.imanet.org.
IMA’s globally recognized CMA (Certified Management Accountant) is the leading certification for management accountants and financial professionals in business. Earning the CMA requires a mastery of advanced-level knowledge in four critical areas: financial planning, analysis, control, and decision support. For more information about the CMA certification program, please visit www.imanet.org/certification.
© 2016 Institute of Management Accountants
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ISBN: 978-0-9967293-4-5 (paper)
ISBN: 978-1-119-72452-0 (ePub)
ISBN: 978-1-119-72455-1 (ePDF)
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Teaching notes for the Management Accounting Case Book are available upon request to accounting academics and practitioners. Requests can be sent to research@imanet.org.
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As the field of management accounting evolves, management accountants are required to have a mastery over an ever-widening body of knowledge, including such areas as risk management, strategic cost management, process management, and more. They must also be able to apply that knowledge in an integrated manner to situations often involving uncertainty.
A useful way to develop such competency is through the use of case studies. Besides making mastery of important concepts more interesting, case studies can enhance one’s grasp of management theory by facilitating broad discussion designed to challenge one’s thinking and helping to foster critical thinking skills.
Management Accounting Case Book: Cases from the IMA Educational Case Journal (MACB) offers may cases that have been through a rigorous review process to ensure high quality of both case and teaching notes and have been used at dozens of schools. Some cases are intended for a certain academic level (e.g., principles, undergraduate, graduate, MBA), but most are usable for multiple audiences and can be adapted to the objectives of the instructor. MACB can be used to supplement a textbook or as a standalone text for using the case method.
The cases in this book were chosen from cases published in the IMA Educational Case Journal (IECJ ®). The IECJ is a high-quality online journal with the mission to publish teaching cases for management accounting and related fields. The IECJ aims to provide an educational resource rich in detail to reflect current business problems. Through publication of these case studies, IMA (Institute of Management Accountants) is pursuing its goal of enhancing the teaching of management accounting worldwide to help develop the global management accounting profession.
The Management Accounting Case Book is organized into five sections, each dealing with a specific area of management accounting:
I want to thank the Associate Editors of the IECJ, the members of the IECJ Advisory & Review Board, and the authors of the cases included in this volume for their many years of support of our journal. Their efforts have been instrumental to the development of this great resource.
I wish you success and hope you enjoy these cases!
Cecily Raiborn, Ph.D., CMA, CPA, CFE
McCoy Endowed Chair in Accounting
Texas State University
Janet B. Butler, Ph.D., CGMA, CITP
Professor of Accounting
Texas State University
Nathan H. Cannon, Ph.D., CPA
Assistant Professor of Accounting
Texas State University
Randall F. Young, Ph.D.
Assistant Professor of Accounting
Texas State University
Light twinkled through the stained glass windows as Pastor Peter Lang walked through Saintly Church. He had just met with Sandy Withers, a CMA® (Certified Management Accountant) and two-year member of the church’s governing board. Lang and Withers had been discussing the fact that the church was perennially short of funds—although what church wasn’t these days?—and the possibility of instituting some new internal controls for oversight.
As a board member, Withers was part of the group responsible for managing Saintly Church’s overall business and nonbusiness affairs. Such responsibility included implementing policies regarding church administrative policies and procedures. Although the church had grown significantly over the past 20 years, board members had made few of the administrative policy changes suggested by advisers and the church’s denomination headquarters.1 The church was primarily operating under a system of trust. The following passage illustrates the majority viewpoint of the board: “Trust is the emotional glue that binds a team together and produces confidence…. High-achieving churches have a high level of trust among the staff. It means the lead pastor trusts the staff, the staff trusts the pastor, and the staff trusts one another.”2
While Withers agrees with the basic sentiment, she also believes that too much trust could create problems. She explained to Pastor Lang that trust is simply not a valid internal control. She referenced a recently-read article stating that the environments of not-for-profit organizations (including churches) often make them more vulnerable to fraud and abuse than for-profit businesses because of the reasons listed in Figure 1. Pastor Lang can see the point Withers was trying to make, but he could also see that putting in internal controls would likely mean additional work for him and other church workers. He asked Withers to please discuss with him any recommendations she is considering before taking those recommendations to the board.
Figure 1: Susceptibility for Fraud and Abuse in Not-for-Profit Organizations
Saintly Church was formed about 20 years ago in a small suburb of a metropolitan area. As the city grew, so did the suburb and the church. A large proportion, but definitely not all, of the members would be classified as having middle-to-high income. To meet the needs of its membership and others in the community, the church operates Little Saints Daycare five days a week. Church operating funds are raised from the Little Saints Daycare tuition, collection plate donations, online donations through Secure Spirits (the church denomination’s giving website), and a monthly bingo game. The church also has two large community rooms that may be rented out for nonchurch events. The community rooms are constantly under renovation to make them more attractive for rental activities.
In addition to a small petty cash fund in the church secretary’s desk drawer, a larger cash “benevolent fund” is available to pay for food for the occasional homeless person or to provide less-affluent church members with financial assistance for small emergencies. If there is insufficient cash in the benevolent fund to help someone in need, the pastor can ask the governing board for additional money.
Pastor Lang has been with the church for three years, having moved halfway across the country just prior to taking the position. He showed up at the right time. The previous pastor retired and moved to Florida a year previously, and the church had just finished its discernment and transition process, which generated recommendations for interview candidates and sought to preserve continuity between the leaving and incoming pastors. After wowing the governing board in his interview, Lang (with an undergraduate degree in accounting and graduate degree in theology) passed his background check and was hired. In addition to his salary and a credit card to be used for church business, Lang is provided with a housing and car allowance. He was slightly disappointed by the salary offered, but stated that he could manage on that amount since he is single and his accounting major made him good at budgeting. His background has also made him a favorite with some of the elderly parishioners because he is able to help them with their finances.
Sabrina Louis, the church secretary, had been hired eight years ago by the previous pastor. That pastor, being concerned about privacy issues related to congregants’ contributions, made Louis solely responsible for counting collection plate offerings rather than the more typical approach of having rotating teams of congregation members perform that task. Over the years, Louis has been given more and more responsibilities. Today she is in charge of much of the bookkeeping, including recording contributions and pledges, preparing financial statements, and making purchases authorized by Lang or, in the case of purchases more than $2,000, by the board. Because of her multiple job duties and her dedication to the church, Louis tends to work long hours and takes few vacation days. She says that vacations aren’t really important to her since she is not married and few family members live close by.
The church has a checking and savings account at a local bank. Two tellers and one manager from the bank are church members. Bank statements are sent to the church address and are reconciled monthly by Lang. In addition to Lang, one member of the governing board has authority to sign checks for the church; only one signature is required on a check. Lang typically makes bank deposits on Monday. Cash and checks from the Sunday collection plate are stored in a small safe that Lang, Louis, and one member of the governing board have the combination for. Cash offerings have decreased significantly over the past few years since many church members prefer to contribute by check or online on a monthly basis.
Daycare tuition can be paid on a daily, weekly, or monthly basis depending on how regularly a child attends. Daily and weekly tuitions are generally paid by check, but some people do pay in cash. Monthly tuition is billed by Louis and remitted to her by check. The number of people working at Little Saints Daycare varies based on the number of children. Lang interviews and hires daycare workers. There are three “regular” workers, and substitutes are available to fill in when needed. One of the regular workers provides Lang with information about the daily number of children attending (and those who paid in cash) as well as who worked and for how long. Lang reviews the attendance records and forwards the attendance records and any tuition payments to Louis. Louis records the tuition payments received then sends the checks or cash to Lang to deposit into the bank. Daycare employees’ timesheets are also reviewed, and the information is given to Louis. She writes the payroll checks, and Lang signs them. One of the other regular workers is in charge of purchasing snack and meal items for the daycare center and turns the receipts over to Lang, who approves them and submits them to Louis to provide payment.
Although Louis is in charge of checking the calendar for availability of community rooms, Lang meets with individuals wanting to rent the room. There is no set fee for room rental. The amount Lang charges depends on whether the person who wants to rent is a church member or nonmember, what the purpose of the rental is, how long the rental will be, and what (if any) church furniture or fixtures will be used. Lang collects a deposit and tells Louis the remaining amount to bill.
The monthly bingo game is scheduled on a Saturday night and is a cash-only event. Both Lang and Louis sell the bingo cards, and Lang pays out the winnings from the proceeds. Volunteers call the games and help with the event. Lang uses bingo proceeds to pay for the volunteers’ drinks and snacks as a thank you for donating their time. The net cash is then deposited into the bank on Monday along with the Sunday offerings. Bingo proceeds have been declining substantially although most church members still attend and socialize.
Three days after her discussion with Pastor Lang, Withers gathered with the rest of the church’s governing board for the monthly meeting. A major focal point of the meeting was the financial statements provided by Louis.3 (Tables 1 and 2 present portions of the 2014 budget and excerpts from the three-year Statement of Activities prepared for the Board.) While they may not have been considered dismal, the financials did not provide good news compared to the budget. Offerings were lower than expected, as were tuition, rental, and bingo revenue. Expenditures for benevolences, daycare worker wages, daycare snacks and meals, and community room improvements were higher than budgeted. The situation has been getting worse over the last 18 months, and the board members were concerned. One board member who had recently become the victim of employee fraud at his business remarked that things had financially gone downhill since Lang had become pastor. The board member then mused aloud that Lang could easily be stealing from the church. After all, had the other board members seen Lang’s new car?
The board members turned to Withers. Surely her knowledge of accounting and budgeting could help them understand what might be happening. Withers thought carefully about everything that was going on. On one hand, logical explanations could be given for all of the unfavorable variances between the budget and actual amounts. On the other hand, internal controls were weak, and the potential for fraud is high.
Given the IMA Statement of Ethical Professional Practice, Withers knows that she has a responsibility to be honest, fair, and objective in addressing the church’s financial issues with the rest of the board members. A CMA has a competence responsibility to “provide decision support information and recommendations that are accurate, clear, concise, and timely.” Additionally, a CMA has a credibility responsibility to “communicate information fairly and objectively” and to “disclose all relevant information that could reasonably be expected to influence [a] user’s understanding of…analyses or recommendations.” Finally, even though the church had no stated internal control policies, Withers knew that she had a responsibility to disclose the control problems that could lead to inappropriate behaviors.