Blackhawk country club

ETHICS, ACCOUNTING AND INTERNAL CONTROL AT BLACKHAWK COUNTRY CLUB

Jeffrey E. Michelman, Ph.D. Professor of Accounting and Director of the International Business Flagship Program Coggin College of Business Jeff.Michelman@unf.edu (904) 620-1541 Jason W. Lee Associate Professor of Sport Management College of Education and Human Services
Jason.Lee@unf.edu

(904) 620-1144 Steven K. PaulsonBlanche and Luther Coggin Professor Emeritus of Management (Contact Author) Coggin College of Business Steve.Paulson@unf.edu (904) 620-1338 University of North Florida 1 UNF Drive Jacksonville, FL 32224

October 15, 2010

The authors developed the case for class discussion rather than to illustrate either effective or ineffective handling of the situation. The case, instructor’s manual, andsynopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 2830, 2010, Gatlinburg, TN. All rights are reserved to the authors and NACRA. © 2010 by Jeffrey E. Michelman, Jason W. Lee and Steven K. Paulson. Contact person: Steven K. Paulson, Coggin College of Business, University of North Florida, 1 UNF Drive, Jacksonville,FL, 32224, 904-620-1338, steve.paulson@unf.edu.

Ethics, Accounting and Internal Control at Blackhawk Country Club—page 2 ETHICS, ACCOUNTING AND INTERNAL CONTROL AT BLACKHAWK COUNTRY CLUB

AN HISTORICAL PERSPECTIVE Maria Hernandez was hired in November 2006 to replace Jason Williams as general manager for Blackhawk Country Club (the Club) in Atlanta, Georgia. Soon after her arrival, Maria wasplaying golf on the Club’s private 18-hole golf course when Bobby Cohen, the head of the Club’s Budget and Finance Committee, approached her and said, “Look out for that guy in accounting. We have never been able to get our construction loan accounts to balance.” The person he was referencing was Andrew Selby, the Club’s Controller since mid 2000. New to her position at the Club, Maria did notknow how to take Bobby’s ominous remark. She would later recognize that this was just the beginning of her journey to uncover the person who committed what the District Attorney’s office would later describe as “the largest private embezzlement case our office has ever seen.” Blackhawk Country Club was founded in 1947 and is a member-owned private club with a golf course, tennis courts, an aquaticcenter, a fitness center, and fine dining. The Club caters to its members through sporting events and social programs geared towards all members of the family. Several renovation projects, valued at over $12 million, were completed in 2004 and 2005. The Club is registered as a 501C (7)1 tax exempt, non-profit organization and is governed by its Board of Governors (the Board). Revenues are receivedthrough monthly dues, food and beverage sales, and other fees. The Club’s Board of Governors is comprised of 12 elected, volunteer members serving three year terms with no consecutive terms. Expiration of the terms is staggered, so that four members are elected each year. Board officers are elected by the Board each year for one year terms with no consecutive terms. Board meetings are held monthly.The Board at the Club consists primarily of businessmen, lawyers, and judges. Based on the bylaws of the Club, the only qualification necessary to become a Board member is to be a member of the Club. Several other committees were in place at the Club, but the bylaws were not clear as to their specific purpose (See Exhibit I for a list of the other committees). According to the Club’s bylaws, theBoard is responsible for ensuring that blanket fidelity bonds2 are purchased. The fidelity bonds are to be in an amount sufficient in the judgment of the club’s insurance provider to indemnify the Club against loss and to cover officers, board members, and employees.
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1 A 501C (7) is a recreational or sport...