Internal Control Assessment of Sunshine Day Care Centre Using COSO Framework Analysis
Overview
This case study analyzes the internal control weaknesses at Sunshine Day Care Centre, a non-profit organization, by applying the five components of the COSO framework. The paper identifies significant deficiencies in control environment, control activities, risk assessment, information and communication, and monitoring systems that expose the organization to fraud and financial reporting risks.
What this case study covers
- Control Environment: examination of organizational structure, management competency, and lack of separation of duties under Barb's sole management
- Control Activities and Risk Assessment: analysis of policy development deficiencies and financial reporting weaknesses exposing the organization to litigation risks
- Information and Communication and Monitoring: assessment of absent budgeting systems, inadequate record-keeping, and lack of reliable information systems
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The Sunshine Center
The Sunshine Day Care Centre is a small non-profit organization. Managers and auditors alike are often faced with increased responsibilities in evaluating internal control and assessing the risk of fraud. According to COSO (the Committee of Sponsoring Organizations of the Treadway Commission), internal control is a process designed to provide rational assurance of objectives in different categories such as financial reporting reliability, operational efficiency, and effectiveness as relevant laws and regulations compliance. The following is an analysis of the Sunshine Center’s case by applying the COSO model's five components.
Control Environment
The sunshine center is under the church's control and managed by Barb, who does not have prior expertise in management, teaching, or childcare provision. A two-person was formed following the resignation of the first committee. The new team comprises Sarah, serving as the chair, Olivia as the secretary, and Rev. Andrew as an Ex-official member. The fact that Barb is handling all the organizational duties alone indicates that the Sunshine Center lacks a clear organizational structure. She is responsible for financial management and human resource responsibilities, which minimizes the management's efficiency and effectiveness. Barb, The church's administrative board, the committee, and Rev. Andrew have all failed to act with honesty and integrity.
Control Activities
The development of policies to govern funds management in an organization depends on competent governance (Graham, Lynford). In this case, Barb lacks the skills for the management job.