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BRIDGEBUILDERS BANK A NICHE BANK IN THE HOOD

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BRIDGEBUILDERS BANK A NICHE BANK IN THE HOOD

    BRIDGEBUILDERS BANK: A NICHE BANK IN

    THE ‘HOOD

    Janice R. Mereba, North Carolina A&T State University

    Case Objectives and Use

This case is a fictionalized account of a bank founded by three African American women in the

    inner city of a large city in the Midwest. It is intended to introduce the challenges of starting a

    business. It also highlights the need for prospective entrepreneurs to understand their own goals

    and challenges they will face if they start their own business. Students will be required to

    understand the accounting and legal processes for forming a corporation. They will also analyze

    the projected financial results of the bank, and discuss the meaning of a market ―niche‖. By

    discussing the accounts depicted in the projected balance sheet and income statement, students

    will learn about the basic financial accounts used by a service sector business. They will also

    learn how a balance sheet for a corporation is set up.

    Case Synopsis

The case is about an African-American woman who had a dream of opening a bank to serve

    unbanked and underserved bank in the inner-city of her home town. A product of the Black

    middle class in Racine, not only did Brenda Wilson want success for herself she wanted the

    same for all African American residents of near-northside Racine, where she had grown up.

    Trained and educated in sociology and community work, Brenda did not have a background in

    finance or banking, but she understood that the economic viability of her community depended

    on the continued flow of business activity and dollars into the community. Her career path had

    moved from work in social service agencies, to selling real estate, to becoming a mortgage

    lender at a bank, to her current status as the founder and president of Bridgebuilders Bank.

Bridgebuilders Bank opened its doors in the fall of 2001. Located in the inner city of Racine,

    Wisconsin, the mission of the bank is to serve members of that community. North Racine had

    experienced what many other inner city neighborhoods had. Larger, more well-established banks

    had deserted the inner cities, leaving for the more lucrative markets in the suburbs. The exodus

    of branch banking in inner city Racine was exacerbated in the 1980s by the deregulation of

    banking. A flurry of acquisitions and mergers resulted in regional or national banks, whose chief

    purpose was to maximize profits. Branches that were profitable, but not profitable enough were

    closed, leaving scores of bank customers without a local branch to bank with. The goal of

    Bridgebuilders Bank was to provide customers with a neighborhood bank.

The author developed the case for class discussion rather than to illustrate either effective or ineffective handling of

    the situation. The case, instructor’s manual, and synopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights are reserved to the authors and NACRA. ? 2004 by Janice R. Mereba. Contact person: Janice R. Mereba,

School of Business and Economics, North Carolina A&T State University, Greensboro, NC 27410, (336) 256-2099,

jrmereba@ncat.edu

    HEALTHSOUTH CORP.: THE FIRST TEST OF SARBANES-OXLEY

    R. Loring Carlson, John M. Coulter, & Thomas J. Vogel

    Western New England College

    Case Objectives and Use

This case introduces students to the requirements of the Sarbanes-Oxley Act of 2002. This Act

    is arguably the most important legislation impacting financial reporting since the Federal

    Securities Acts of 1933 and 1934. Students are provided information surrounding the events that

    led up to an accounting fraud at HealthSouth Corporation where income was overstated in excess

    of $2.5 billion. Also provided are excerpts from the Report of the Special Audit Review

    Committee of the Board of Directors of HealthSouth Corporation, which highlights many

    deficiencies in the financial reporting process of HealthSouth. Using this information, students

    will gain exposure to parts of the Act designed to prevent such abuses in the future such as new

    rules for auditor independence, corporate governance responsibilities, and the accountability for

    corporate and criminal fraud. In addition, this case affords students the opportunity to identify

    significant deficiencies in internal controls over financial reporting and to consider the extent to

    which these deficiencies create a material weakness that will necessitate the rendering of an

    adverse opinion on controls consistent with Section 404 of the Sarbanes-Oxley Act of 2002.

    Professional guidance from a Big 4 firm is provided to assist students in this process. The case is

    useful in an advanced auditing course where the intricacies of the Act are covered.

    Case Synopsis

In 2003 federal authorities obtained thousands of documents pertaining to the accounting records

    of HealthSouth Corporation, headquartered in Birmingham Alabama. The SEC alleges that the

    Company deliberately overstated its earnings by a total amount of over $2.5 billion. Over a

    dozen executives have pled guilty to various charges in connection with these fraudulent

    misstatements, and the former CEO, Richard Scrushy, awaits trial on eighty-five criminal counts,

    including three counts under the Sarbanes-Oxley Act. As a result, he becomes the first CEO of a

    major company to be charged with violating the Act. PricewaterhouseCoopers, LLP, was

    contracted to perform a special audit to identify the misstatements in HealthSouth’s publicly

    issued financial statements for the period 1999-2001, to quantify the impact of those

    misstatements, and to make recommendations associated with necessary improvements in

    internal controls in order to reduce the future likelihood of the occurrence of fraud. The report on

    the special audit provides details on a number of potentially significant deficiencies in

    HealthSouth’s controls over its financial reporting process. Case questions are designed to have

    students assess the viability of the Act to HealthSouth and future accounting scandals.

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, and synopsis were anonymously peer reviewed and accepted by the

    North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona AZ. All

    rights are reserved to the authors and NACRA. ? 2004 by R. Loring Carlson, John M. Coulter, and Thomas J.

    Vogel. Contact: Thomas J. Vogel, Western New England College, 1215 Wilbraham Road, Springfield, MA 01129,

    413-782-1501, tvogel@wnec.edu

    PREVENTING BLACKOUTS: STRATEGIES AND REPORTING OPTIONS

    Ellen Lippman, University of Portland

    Brandon Une, Deloitte & Touche

    Paula Wilson, University of Puget Sound

    Case Objectives and Use

Recent, serious blackouts in the Northeastern United States and Canada have created renewed

    operational and political pressure on utilities to maintain safe and reliable sources of power. This

    case portrays two primary issues faced by an electric utility considering an investment in power

    grid improvements on transmission lines that are neither owned nor controlled by the utility. The

    case develops student skills in evaluating the strategic importance of corporate investments.

    Additionally, knowledge of accounting is enhanced through consideration of difficult

    asset/expense classification issues. The case is appropriate for undergraduate or graduate level

    corporate finance, accounting theory, financial statement analysis, or financial accounting

    courses.

    Case Synopsis

Greater Metropolitan Power Consortium (GMP) generates and wholesales power through

    hydroelectric dams built on the Rogue River. To transport the electricity, GMP owns thousands

    of miles of transmission lines and also uses lines owned by customers. GMP’s transmission grid

    is among the most severely constrained in the United States, and many parts of the grid are more

    than 30 years old. While GMP has spent $130 million in the last eight years to improve its

    transmission lines, it estimates the cost to complete the upgrade at another $2.6 billion. However,

    in part because of national security concerns heightened by the severe power blackout in the

    Northeastern United States and Canada in 2003, there is a renewed sense of urgency to improve

    the power grid.

GMP has two decisions to make. One, should it make a strategic investment to upgrade

    transmission lines owned and controlled by a customer? Two, how should it account for this

    investment, considering the expenditure is for grid improvements for which it has neither

    ownership nor control. GMP’s strategic question is evaluated from an economic perspective

    while considering the political ramifications of the decision. GMP’s accounting question of

    asset/expense classification is evaluated within the context of a specialized industry that follows

    both GAAP and FERC regulations.

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, and synopsis were anonymously peer reviewed and accepted by the

    North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights are reserved to the authors and NACRA. ? 2004 by Ellen Lippman, Brandon Une, and Paula Wilson.

    Contact person: Ellen Lippman, Pamplin School of Business Administration, University of Portland, 5000 N.

    Willamette Blvd., Portland, OR 97203, 503-943-7268. lippman@up.edu

    RIVER CITY AMBASSADORS: CAN THIS ORGANIZATION BE AUDITED?

    Scottie Barty & Rita Czaja

    Northern Kentucky University

    Case Objectives and Use

This case deals with internal control issues in a not-for-profit organization that handles large

    amounts of cash using a volunteer workforce. It provides students with an opportunity to

    flowchart a cash receipts system and to assess internal control strengths and weaknesses. The

    key issue is whether the organization’s bingo game operation can be audited. This case was

    written for use in undergraduate and graduate auditing courses.

    Case Synopsis

    The River City Ambassadors, a 501(c) (3) notfor-profit-organization, was established in 1980. The Ambassadors’ mission has been to support activities related to the pageantry arts of

    marching and musical performance, in particular to field competitive Drum and Bugle Corps and

    Winter Color Guard units. In 1982 the Ambassadors’ board inaugurated weekly bingo games to

    provide the financial resources necessary to fund the organization’s competitive units. Each

    board member volunteered time each week to help manage the two weekly bingo sessions. In

    1985, the Ambassadors spoke with auditors about auditing the organization’s financial

    statements. The auditors stated that the bingo operation lacked sufficient controls over cash and

    therefore, could not be audited.

The Ambassadors experienced major organizational changes during 2000. The new board

    decided to train an expanded volunteer base that would reduce the bingo burden on board

    members and to make other changes that they hoped would result in increased bingo game

    profits. The new board also committed to strengthening administrative and financial controls.

The case describes the duties of the volunteers who assist with the operation of each bingo

    session. These procedures reflect new internal controls. The case also describes the activities

    that take place during a bingo game session. Selling pull-tab tickets during bingo games is an

    important source of additional revenue.

In 2004, the board authorized Amanda Shepard (Treasurer) to seek an audit of the financial

    statements. As Amanda prepared for the first interview with the auditors, she wondered, ―Will

    the new procedures and controls that we have put in place and documented in the Bingo

    Operations Manual be enough for the auditors? Are we finally ready for an audit?

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, and synopsis were anonymously peer reviewed and accepted by the

    North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights are reserved to the authors and NACRA. ? 2004 by Scottie Barty and Rita Czaja, Contact person: Scottie

    Barty, College of Business, Northern Kentucky University, Highland Heights, KY 41099, 859-572-6526,

    scottieoh@aol.com

    TADPOLE’S—YOGURT BOTIQUES: SELLING A SMALL BUSINESS,

    A TAX PLANNING CASE

    Nathan Oestreich, Martha Doran, & Lena Rodriguez, San Diego State University

    Norman Solomon, CPA

    Case Objectives and Use

This case involves the sale of a small business, illustrating the income tax treatment to the seller

    and the buyer. Students will determine the character of the gain or loss for tax purposes and

    observe the impact on the overall tax and net proceeds to the seller and the net cost to the buyer.

    The various discussion questions deal with the treatment a sale by an individual seller, a

    partnership, and a corporation, as well as, in the latter two, the effects of selling an interest in the

    entity. Lastly, students are asked to contemplate the effects of changes in the sales agreements in

    order to give them a sense of the tax planning that goes on related to business sales and the

    effects on cash flow.

The teaching objectives range from understanding the law, to analyzing relatively complex

    transactions, to developing tax strategies. Specifically, they include the following: (1) To

    understand significant tax factors related to the sale of a business, (2) to identify and calculate

    the capital gains and the ordinary income from the sale and calculate the tax thereon, and (3) to

    compare the sale of the assets of a business to the sale of an interest in the entity (when the entity

    is a partnership or a corporation).

    Case Synopsis

Judith Manseur owned and operated a chain of small yogurt and soft-serve stands—TadPole’s—

    located primarily in strip shopping centers in affluent sections of San Diego for ten years. The

    business was an early entry into the now popular market for yogurt in numerous flavors

    accompanied by creative mixes of toppings and other accompaniments.

Judith recently decided to sell the business. In consultation with her accountant, lawyer, and a

    business broker, Ms. Manseur estimated the value of her business and the underlying assets

    (provided in the case). The business was estimated to be worth $3,000,000. Students are asked

    to determine the tax effect of the transaction for the seller and the buyer. They are then

    challenged to recommend changes that may or may not make the sale more attractive to the seller

    or the buyer, or both.

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, and synopsis were anonymously peer reviewed and accepted by the

    North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights are reserved to the authors and NACRA. ? 2004 by Nathan Oestreich, Martha Doran, Lena Rodriguez, &

    Norman Solomon. Contact person: Nathan Oestreich, School of Accountancy, San Diego State University, 5500

    Campanile Drive, San Diego, CA 92182-8221, 619-594-5070, drno@sdsu.edu

    THE WHISTLE STOP ALE HOUSE: TO BUY OR NOT TO BUY?

    Gerald M. Myers, Pacific Lutheran University

    Case Objectives and Use

The main focus of the case is capital budgeting. The owner-managers of a restaurant have to

    decide whether to lease space and then spend a considerable sum remodeling a building they

    don’t own or to buy a building and incur substantial remodeling costs in addition to the cost of

    purchasing the real estate. The lease alternative includes an unwritten offer from the landlord to

    cover some of the remodeling costs, subject to negotiation. The final decision depends on both

    financial viability and qualitative factors.

Students are required to prepare a full discounted cash flow analysis and weigh qualitative and

    strategic considerations in their decision. The attraction of glass blowing as entertainment, the

    trade-offs between ownership of real estate and leasing, and the relative size of the two sites are

    all factors to be considered.

The case was developed for introductory or advanced BBA classes or MBA classes in

    managerial accounting or managerial finance. Use of a computer spreadsheet is strongly

    recommended for the quantitative analysis. Students are required to prepare a full discounted

    cash flow analysis and weigh qualitative and strategic considerations in their decision. The

    attraction of glass blowing as entertainment, the trade-offs between ownership of real estate and

    leasing, and the relative size of the two sites are all factors to be considered

    Case Synopsis

Jeff and Melinda Lawrence, owner-managers of the Whistle Stop Ale House, are about to lose

    the lease on the property that houses their restaurant. Two alternative locations have been

    identified. One site would require leasing space and spending at least $250,000 remodeling a

    building they don’t own. Another $100,000 or more would be required to repair and reinforce the

    roof to support ventilating equipment required for the kitchen. The landlord has made a verbal

    offer to cover up to $100,000 for the roof work, with the actual amount subject to negotiation.

    The attraction of the leased space is that it is adjacent to a glass blowing studio in the same

    building. Part of the remodeling cost would include construction of a partition with large

    windows through which diners could watch the glass blowers at work. The other alternative

    would involve $343,000 outlay to purchase a vacant grocery store, and the expenditure of

    another $273,000 to remodel the building. The vacant grocery store is closer to the original

    location and would preserve more of the atmosphere of the current operation. Financial and

    qualitative considerations weigh heavily in the decision whether to lease or buy.

The author developed the case for class discussion rather than to illustrate either effective or ineffective handling of

    the situation. The case, instructor’s manual, and synopsis were anonymously peer-reviewed and accepted by the

    North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights reserved to the author and NACRA. ? 2004 by Gerald M. Myers. Contact person: Gerald M. Myers, School

    of Business, Pacific Lutheran University, Tacoma WA 98447, myersgm@plu.edu

    WHO IS MANAGING THE STORE?

    Aundrea Kay Guess, St. Edward’s University

    Case Objectives and Use

This case is designed to help students understand the problems associated with not having

    segregation of duties and to identify ways that these duties could be assigned in a small business

    where there are a limited number of employees. The case will require students to look at upper

    management’s duties as well as those of lower-level employees. The case can be used in an

    Auditing, Internal Auditing, ethics or an entrepreneur class. It is most suited for an

    undergraduate class or a graduate class if students did not have Auditing at the undergraduate

    level.

    Case Synopsis

Central Texas Truck Sales is a small truck dealership owned by Richard Dickson. When

    Dickson first began operating this business he was very involved in day-to-day operations. After

    several years of working long hours, six days a week, he turned operations over to the Controller,

    Frank James. James was a long-time, trusted employee who was given full authority in all areas

    of the business, the financial as well as the managerial. Dickson became a token figure-head as

    he spent only a few hours a day at the business. He had an outside accountant who did the taxes

    and performed a routine audit of the books annually. The problem was that James had control of

    all of the functions related to the books and he took advantage of that position and embezzled

    money from the company. This went on for several years before it was discovered. In addition,

    the accounts receivable clerk was also stealing money from the company.

Problems with this small business centered around the lack of segregation of duties at the upper

    level and within the bookkeeping department, and with the owner leaving decisions to others.

    The auditor’s failed to uncover the problems.

Dickson needs a consultant to help him with the assignment of duties in order to have a proper

    segregation of duties in this small business to help prevent theft. He also needs the consultant to

    advise him as to what to do at this point to get his business running smoothly again and build

    confidence back so his suppliers and creditors can rely on his financial information and the

    integrity of the business.

The author developed the case for class discussion rather than to illustrate either effective or ineffective handling of

    the situation. The case, instructor’s manual, and synopsis were anonymously peer-reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 7-9, 2004, Sedona, AZ. All

    rights reserved to the author and NACRA. ? 2004 by Gerald M. Myers. Contact person: Aundrea Kay Guess,

    Graduate School of Business, St. Edward’s University, 3001 South Congress Avenue, Austin, TX 78740, (512)

    448-8562, aundreag@admin.stedwards.edu

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