You are the auditor for GreenAcres, a non-profit home for the homeless elderly. GreenAcres has a December 31 year-end. It receives government funding and also relies on donations for revenue. GreenAcres has a major funding drive in November, when it collects pledges by means of activities at a garage sale, a walkathon, and bake sales in the community.

In late February you had a meeting with Ellen Famous, the President of GreenAcres, at the organization's premises. Ellen reviews and approves bank statements and is the second and final cheque signer. Two other accounting staff have the following responsibilities:

• Paul approves pledge write-offs (which normally average about 15%), opens the mail, endorses cheques received in the mail, prepares and delivers bank deposits, and posts transactions into the accounting system.

• Diana, a retired bookkeeper, volunteers about 10 hours per week to reconcile the bank account, review journal entries posted to the general ledger, and prepare payroll and accounts payable transactions for processing.

  Ellen normally reviews pledge write-offs but was very busy in February, so she took a look while you were there. To her surprise, she found that about 40% of the pledges had been written off. She asked Diana to investigate, and Diana found that most of the write-offs had actually been paid.

Required

1. What are possible causes of the inconsistency with the pledge write-offs?

2. What is the primary weakness in internal control that could allow the excess write-offs to occur?

3. Identify three audit procedures that you would complete to quantify any potential misstatement with respect to the pledges receivable balance as at December 31. Do not use analytical procedures.

Answer rating: 100% (QA)

Fraud or error opportunity to commit fraud Segregation of duties Matching received pledge with accounts receivable the unpaid pledge can be matched with register Existence completeness allocation and ... View the full answer