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Identify and Briefly Describe Fundamental and Cost-Effective Internal Controls That Charitable Organizations Could Implement to Reduce Their Exposure to Theft Issues

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Identify and briefly describe fundamental and cost-effective internal controls that charitable organizations could implement to reduce their exposure to theft issues.

According to Whittington & Pany 2008, control environment factors include integrity and ethical values; commitment to competence, board of directors, or audit committee; management's philosophy and operating style; organizational structure; assignment of authority and responsibility; and human resource policies and procedures. Charitable organizations could also implement control activities such as performance reviews, information processing controls, physical controls, and segregation of duties that would reduce their exposure to theft issues. As in the United Way case, implementing policies and procedures would help deter fraud. One major aspect of internal control that would reduce the risk of the possibility of fraud within charitable organizations is to form regulatory infrastructures and mandate all states to have an agency that would have direct responsibility to regulate charities.

Do CPA firms have a responsibility to perform audits of charitable organizations for reduced or lower than normal audit fees? Defend your answer. Other than audit fees, what other benefits do accounting firms accrue by auditing a charity?

I don't believe that CPA firms have a responsibility to perform audits of charitable organization for reduced or lower than normal fees. According to the AICPA website, it is critical to understand the complexities of the not-for-profit industry, including revenue and expense recognition, asset valuation, and financial statement presentation. With the complexities involved in auditing charitable organizations, CPA firms may charge more than a for-profit organization.

Accounting firms accrue several benefits in auditing a charity to include experience in auditing a charity, advertising and the possibility of receiving more charity organizations using their firm for auditing.

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