Knottyville Country Club: Asset Misappropriation
Srinivasan Ragothaman

LEARNING OBJECTIVES
After completing and discussing this case, you should be able to
Evaluate misappropriation risk factors
Evaluate internal controls
Design new control
Governance in non-profit sector
Analyze materiality decisions
Apply SAS 99, PCAOB AS5, and SAB 99
Perform cost benefit analysis

Knottyville Country Club: An Instructional Case on Asset Misappropriation
There was a stunned silence in the courtroom as the Circuit Judge was about to announce the sentence. “You are sentenced to 15 years in prison for grand theft. Your abominable conduct ran long and deep, and it is now time to pay for it,” said the judge. The judge also suspended an …show more content…

The other signature had to come from another employee, Sarah or from Robert, who is on the board of directors and is the treasurer. Fancy often asked Sarah to sign blank checks in advance so that she can pay the bills on time and does not have to wait for the second signature. Unsuspecting Sarah would readily oblige and would sign several blank checks from time to time.
As the bookkeeper, Fancy was in charge of maintaining the accounting records. She did the monthly bank reconciliation as well. Every three months Fancy would meet with the finance committee of the board and report about the financial situation. She would prepare simple profit and loss statements and a balance sheet. Working with the treasurer, she also presented the annual budget to the finance committee for its approval. Because Fancy was in charge of ordering supplies, she would often insist that they buy alcoholic beverages from a particular supplier who was her college classmate.
Members of the Club were allowed to charge their meals and drinks and pay for them later when the monthly statements are mailed to them. Fancy would charge a few dollars extra to some members’ monthly restaurant/bar bills. If the members did not notice the extra charge, she would keep the money. If the members complained that they did not order that item or were not at the club on that day, she would apologize, blame it on clerical error and give credit to the