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Yimei is a senior state auditor in Michigan and licensed CPA. She has been assigned the audit of Family Outreach (FO), a nonprofit social services organization that helps about 32,000 families a year with child-raising and child-development issues, especially those considered "at-risk" families. The organization holds workshops and programs for parents, teachers, and child-care providers. The organization has an annual budget of $3.1 million. FO employs about 30 employees and receives funds from a variety of private, city, state, and federal grants.
Yimei was in charge of the audit of FO for the city, state, and federal grants for 2013. She reports to Kwami, her supervisor in the Michigan state auditor's office. In reviewing the audit papers so far, Yimei noticed that $200,000 appeared in three expense accounts that she never had seen before on the books of a nonprofit: parent reimbursements, entertainment expenses, and reconciling costs. Together, the $200,000 was a material amount.
1. If you were Yimei, what ethical concerns would exist for you upon discovering the three accounts? What is the first thing you would do upon discovering the three accounts?
2. Assume that FO provides invoices to justify the amounts in each account. You review the documentation and notice that each one has the same font, font size, and exact format. Being a skeptical auditor, you are suspicious about the validity of the audit evidence. What are your ethical and professional responsibilities given the questionable nature of the audit evidence and your role as the lead auditor? 3. We discussed the issues of accountability and transparency with respect to corporate governance in Chapter
3. In the public sector, the chief investigative officer is the Inspector General (IG) who is accountable to the taxpayers. IG's are supposed to detect and prevent waste, fraud and abuse and thereby build trust in government. What would you do if you were Yimei and were told by Kwami to drop the matter because the chief operating officer of FO is the sister of the IG? Do you have any whistle-blowing obligations in this matter?