ACCOUNTING CAPSTONE PROJECT – AUDITING

Capstone Integration Case

It is January 10, 2020. You, CA, live in the Peel region of southern Ontario and your children attend one of the area’s private schools, Niagara Escarpment Greenlands Collegiate (the school). The School is one hundred percent owned by Mr. Calypso Orchid, who also acts as the School’s Headmaster. The School’s volunteer council (the Council) is looking for a new Treasurer since the previous Treasurer, another CA, resigned unexpectedly in December. The Council was created in September 2019 to raise funds to pay for books and computers for the new library that is expected to be completed in 2020. After speaking to the Headmaster over the phone, you accept the volunteer Treasurer position.

You decide to meet with the Headmaster in person to determine what needs to be done. When you arrive at his office, you find the Headmaster clearly upset.

“The Council meets each month, but I wasn’t able to attend any of the meetings since I have been so busy this fall with the construction of the new library building. The Treasurer kept promising to give me a statement of how much money was raised, but the only financial information I received was a statement of fundraising activities when she resigned. I just don’t understand why the Council hasn’t raised more money given all of the fundraising initiatives this fall. I thought we would have raised at least $20,000 by the end of December.

“I would like you to review the profitability of the fundraising initiatives of the Council and redraft the Statement of Fundraising Activities for any errors or concerns you find.” The Headmaster hands you some background information on the Council’s fundraising activities that he has summarized for you (Exhibit I) and the Council’s Statement of Fundraising Activities provided by the Treasurer (Exhibit II).

“I need to understand what is going on. I’m worried that the Council is going to continue with a fundraising campaign that doesn’t generate any profit. Please give me recommendations on what kind of information, both financial and otherwise, I should be requesting from the Council to stay informed.

“In the fall, the Council accepted cash payments only. However, the School received a number of complaints from parents about having to send cash to school with their children. As a result, we have decided to move to a cashless online system to collect all payments. The School has hired Parent Centre Inc. (Parent Centre) to provide an online system for us. We have delayed the start of any further fundraising activities until the new system goes live on March 1, 2020. Halton Hills Academy, a neighboring school, implemented Parent Centre’s

system last year and had some problems. Therefore I need you to determine whether appropriate controls are in place over the system before we go live. I am particularly concerned about the confidentiality of parent and student information.” He hands you a description of the proposed website (Exhibit III) and some of the comments that the Principal of Halton Hills Academy had emailed him (Exhibit IV).

“I almost forgot to tell you something. The Council has its own bank account and I just received the December 2019 bank statement. The account balance was $11,400 at the end of the year but the statement of fundraising efforts shows a net profit of $12,442. The Treasurer said that all deposits had been made and I know that there is no cash left in the school office. What can be done to figure out where this extra cash went? Can you or someone else conduct an investigation to see what has happened and explain to me what work would be involved?” You decide to draft a report to the Headmaster addressing his concerns.

EXHIBIT I Information on the Council’s Fundraising Activities

One of the key objectives of the Council is to initiate and oversee fundraising activities throughout the school year to generate funds to purchase library books and computers. The Council oversaw the following fundraising activities:

Milk Days

During the first week of school, the Council offered a daily milk program to the School’s 620 students, whereby a student would receive a 250 ml carton of 2% white milk or 1% chocolate milk at lunch time on each school day. The Council negotiated a purchase price of $0.40 per carton with a local grocery store, Bruno’s Food Port, based on an expected enrollment of 300 students in the milk program.

Parents had to sign up their students for the entire school year at a weekly price of $2.50 for 40 weeks (which takes into account PD days and March Break). The payment for the entire school year was submitted with a sign-up form and dropped off at the School’s main office. Based on the sign-up forms collected, 60% of the School’s students enrolled in the program. The office remitted all of the collected funds to the Treasurer. A cheque was issued to Bruno’s Food Port on October 1, 2019 to pay the entire purchase price for the school year.

Pizza Lunches

Beginning in September, the Council offered pizza lunches to students on the first Tuesday of each month and on the last Friday of each month. Students could choose from the following options:

1 slice for $2.00, either cheese or pepperoni
2 slices for $3.50, either cheese or pepperoni

The Council initially estimated that 40% of students would participate on each pizza day, of which 50% of students would choose the one slice option. The Council planned to order extra-large pizzas with 10 slices at a cost of $16 per pizza from Antonello’s Pizzeria.

Unfortunately, Antonello’s Pizzeria went out of business before the first pizza day and the Council instead purchased from Little Brutus’s at a cost of $17 per 10 slice pizza. Pizza slices were distributed at a central location in the school. The cash was collected by Council volunteers on each pizza day and then remitted to the Treasurer. A cheque for the pizzas ordered was issued to Little Brutus’s on each pizza day.

In December, a Council volunteer tallied all the orders and noted that a total of 550 pizzas were ordered from

September to December. On average, 420 students had participated in the program on each pizza day, and 60% had chosen the one slice option. She commented that there were often extra slices at the end of pizza day that were not sold because the right number of cheese or pepperoni pizzas were not ordered.

Pumpkin Drive

The Council partnered with a local farm, Chudleigh’s Farm (CF), to sell pumpkins in the month of October. Students could sell large pumpkins for $7, medium pumpkins for $5 and small pumpkins for $3. CF agreed to charge the Council $5 for large pumpkins, $4 for medium pumpkins and $3 for small pumpkins.

Students accepted cash for payment and then remitted the amount to their teacher with their order form. Each teacher submitted a summary order form and all of the monies collected were remitted to the Treasurer.

At the time of invoicing, CF decided to donate the small pumpkins at no cost because the School’s students had sold so many large and medium pumpkins. Based on the invoice received from CF, the number of pumpkins delivered to the School was as follows:

Large – 870
Medium – 615
Small – 375

A cheque was issued to CF on December 1, 2019.

Garbage Bag Sales

In November, the Council held a garbage bag fundraising campaign through a program with Poly Bag Central

(PBC).

Each student was given a brochure from which consumers could select garbage bag products to purchase.

Students collected cash at the time of ordering and then submitted the funds with their order envelope to the

School’s main office. Once all the forms were collected, the Council sent the order forms to PBC and the Treasurer collected the cash. Teachers collected envelopes from 470 students and a total of 1,830 rolls were sold. A cheque was issued to PBC on December 15, 2019 to pay for the rolls sold.

The following items were offered in the brochure:

Item Description	Dimensions (Width x Length)	Number of Bags per Roll	Selling Price per Roll	Cost per Roll*
Compostable Bags	41 cm x 42 cm	30	$12	$7.60
Kitchen Bags	50 cm x 53 cm	50	$12	$7.60
Large Garbage Bags	76 cm x 83 cm	20	$12	$7.60

* PBC offers free freight on minimum orders of 1,200 roll packs, otherwise an additional $1.40 is charged per roll.

Student Pictures

In early December, Picture Perfect Imaging (PPC) visited the School and took pictures of each of the 620 students. Parents were offered the following picture packages for purchase:

Package A – $45
Package B – $38
Package C – $30
Package D – $25
Package E – $10

Each homeroom teacher collected the cash payments from the students and then submitted a summary form of packages ordered and the money collected to the Treasurer. The agreement with PPC required that the School submit a payment equal to 95% of total sales and keep a 5% commission. However, if

more than 90% of students purchased pictures, the School would only have to submit 80% of total sales and the commission increased to 20%.

Based on the summary forms prepared by the teachers, the following numbers of packages were purchased:

Package A – 190
Package B – 145
Package C – 80
Package D – 120
Package E – 40

In late December, a cheque was issued to PPC to pay for the packages purchased.

EXHIBIT II

Statement of Fundraising Activities Supplied by the Council Treasurer

Niagara Escarpment Greenlands Collegiate Council Statement Of Fundraising Activities

For the four months from September 1, 2019 to December 31, 2019

Fundraising Revenue
Milk Days (note 1)	$ 30,000
Pizza Lunches (note 2)	5,456
Pumpkin Drive (note 3)	9,300
Garbage Bag Sales (note 4)	11,904
Student Pictures (note 5)	18,352
	75,012
Fundraising Expenses
Payment to Bruno’s Food Port (6)	24,000
Payment to Brutus’s Pizzeria (note 7)	4,768
Payment to Chudleigh’s Farm (note 8)	7,440
Payment to Poly Bag Central (note 9)	8,928

Payment to Picture Perfect Imaging (note 10)	17,434
	62,570

Net Profit	$ 12,442

Calculations supporting fundraising revenue and expense amounts:

Expected number of students to enroll of 300 x 40 weeks in the school year x weekly price of $2.50 = $30,000
620 students x 40% x 50% x $2 for 1 slice x 2 days per month x 4 months =

$1,984 620 students x 40% x 50% x $3.50 for 2 slices x 2 days per month x 4 months = $3,472 Total = $5,456

Assume equal number of each size of pumpkin will be sold by each student. Average sales price = ($7 for large + $5 for medium +$3 for small) / 3 = $5 1,860 pumpkins sold x $5 per pumpkin = $9,300
620 students x expected participation rate of 40% x 4 rolls each x selling price

$12 = $11,904

Equal distribution of students purchasing each package (620 students / 5 packages = 124)
- Package A – $45 x 124 = $5,580
- Package B – $38 x 124 = $4,712
- Package C – $30 x 124 = $3,720
- Package D – $25 x 124 = $3,100
- Package E – $10 x 124 = $1,240
- Total = $18,352
Expected number of students to enroll of 300 students x 40 weeks in the school year x 5 days per week x $0.40 cost per carton = $24,000
620 x 40% x 50% x 1 slice x 2 days per month x 4 months = 992 slices 620 x 40% x 50% x 2 slices x 2 days per month x 4 months = 1,984 slices. Total slices

= 2,976 / 10 slices per pizza = 298 pizzas x $16 per pizza = $4,768

Average cost = ($5 for large + $4 for medium + $3 for small) / 3 = $4. 1,860 pumpkins sold x $4 per pumpkin = $7,440
620 students x expected participation rate of 40% x 4 rolls each = 992 rolls 10. 992 rolls x (cost of $7.60 + freight of $1.40) = $8,928
Payment to Picture Perfect Imaging equal to 95% of total sales ($18,352 x 95%) = $17,434.

EXHIBIT III Description of the Proposed Website

The Parent Centre is an easy and secure website for parents and guardians to pay school-related fees from the convenience of their homes. The system has the following benefits:

Credit card payments can be made online 24 hours a day, 365 days a year.
No more sending cash to school with students, where it can be lost or stolen.
Online resources, including downloadable permission forms, purchase receipts and payment history, are available.

The Principal and the school secretary will be set up as the website administrators. The website administrators can make changes to the student information in the system, correct email addresses, and change the bank account information, The Parent Centre website will use an external provider, CreditCheck, to process credit card payments. At the end of each week, the website will submit a list of all payments and credit card information to CreditCheck for processing via email. The website administrators may also do this more frequently, although the information would need to be downloaded and submitted manually via email. The website provider will receive a weekly report from CreditCheck that lists all of the transactions processed.

The Parent Centre website is extremely user-friendly with minimal work required to get the site online and running by March. To use the site, parents will need to follow four easy steps:

Step 1: Profile Set-up

All users will need to register by setting up an online profile. The first step is to access the Parent

Centre website, enter the user’s email address and a login password. After completing these two fields, the user account becomes active and they will then be directed to the Account Set-up page.

The email address and password input will be used to log into the site after the parent has registered. This email address will also be used to contact the user when his or her account reaches a predetermined ‘low balance’ and to email the user information regarding online resources.

Step 2: Account Set-up

The next step is to create a student account by entering in the student’s first and last names. If there are multiple students with the same name at the School, the website will list those students with their addresses and dates of

birth to allow parents to select the correct student. This list will only be available to users who have created an account on the website.

Step 3: Deposit Funds

In order to deposit money into a student’s account, users will need to enter their credit card information

(e.g., cardholder’s name, credit card type, credit card number, credit card expiry date) and the amount to be deposited into the student’s account. The student’s account will automatically be updated to reflect the amount of the deposit and will be available for immediate use.

Step 4: Pay for Fees

To pay for school fees online, the user will click on ‘Shopping Cart’ and then select the applicable item (e.g., pizza day). For each fee selected, the user will enter the amount to be paid. Users can select multiple items and then click on ‘Checkout Shopping Cart’. The system will only allow a user to checkout if there are sufficient funds in the student’s account. The system will ask the user to confirm the payment prior to processing the transaction.

EXHIBIT IV Comments from Principal of Halton Hills Academy

Calypso Orchid

From: <principal@haltonhillsacademy.ca>

Sent: January 3, 2020

To: Calypso Orchid

<headmaster@niagaraescarpmentgreenlandscollegiate.ca>

Subject: Comments on the Parent Center system

Importance: High

Overall Halton Hills Academy was very pleased with the Parent Centre system. The system was easy to set up, as we simply uploaded an excel sheet with the students name, address, and date of birth.

The system allows you to send out a broadcast email to all registered users which was done last month, however, a number of these emails were not received by the parents as their email addresses had been entered incorrectly.

There has been a significant delay in receiving payment from CreditCheck usually due to a credit card expiry date being entered in the wrong format or incorrectly.