Prepared by M.L. MacInnis under the direction of D.T. Carter
Crawford Baker, CA, is comptroller for the Young People’s Credit Advisors of Canada (YPC), a not-for-profit organization. Last year he promised YPC he could obtain a favourable audit fee from his previous employer, Gabriel, Collins & Wilson Chartered Accountants (GC&W). When the audit fees turned out to be significantly higher than expected, Baker secretly covered the shortfall with a cheque issued on his own account.
This year Baker neglected his pre-audit duties and failed to arrange for the year-end audit. Instead, he compiled the financial statements on his own, copied them onto GC&W letterhead, and signed and issued an audit report in the name of the audit firm. Documents were then submitted to a government Ministry attesting to the correctness of the "audited" financial statements.
After several months passed without a bill from the auditors, YPC management called to find out why. It did not take long to uncover Baker’s doings once it was established that an audit had not been performed. When confronted, Baker admitted to his indiscretions. By his reasoning, it all stemmed from his embarrassment that the promised audit fee from last year could not be met. Anxiety over the fact that he could not afford to subsidize another audit distracted him from his duties. Over time, fear of embarrassment turned to fear for his job, eventually to the point that he thought it best for him to prepare the financial statements on his own.
What should YPC do?