Control Environment - Example 1

Question
EuKaRe
- charity
- support children from disadvantaged backgrounds who wish to take part in sports
- detailed constitution - how income can be spent
- administrative expenses cannot exceed 10% of income
- income from voluntary donations: cash (public - shopping area), cheque sent to HQ, specific clauses attached to them (specific activities eg provision of sports equipment and capital cannot be spent)
- taxation of charities - complicated (only certain expenditure is allowable; some capital treated as income)

EXPLAIN WHY THE CONTROL ENVIRONMENT/ CULTURE/ ATTITUDES MAY BE WEAK AT THE CHARITY EUKARE. (4 marks)

Answer

Management philosophy
A 10% administrative cap signify that management wish to spend a minimum on recording, collecting and banking in donations fund. With tight budget, difficult to implement suitable internal controls. 10% cap is decided by Directors.

Board of directors competence
Volunteers are going out to collect donations. Shocking to see directors are NOT involved to train them. There are no supervisions on the site to coordinate & collect day's donations.

Individual Directors' commitment
Constitution dictates that fund is used for sports focusing on disadvantaged children. Control cultures are weak as Directors failed to exhibit by example on how effective fund should be used.

Human Resource Policies and job description
Volunteers aren't hired. So no job description. Culture is dependent on ethical principles of volunteers. If poor integrity, then control culture is weak. Volunteers dominate culture values.

Attitudes, values and beliefs of workforce
Volunteers sent to shopping malls to collect donations. No training to influence their behaviour and values. Likely control culture is weak since there is no involvement from managers or directors to influence volunteers beliefs and attitudes.