Academic journal article
By Higgs, Julia L.; Reisch, John T.
Issues in Accounting Education , Vol. 17, No. 1
ABSTRACT: A large part of an auditor's work includes evaluation of an organization's compliance with laws and regulatory requirements, internal policies and procedures, and other rules that an entity must follow. The objective of this case is to assist you in understanding both the importance of compliance auditing, and the need for auditors to exercise professional judgment when interpretation of rules is required. The case involves a hypothetical university's adherence to NCAA rules and regulations. The first part of the case provides exposure to various resources needed to develop an understanding of both intercollegiate athletics and compliance with rules established by its governing body, the NCAA. The second part requires you to use judgment in interpreting different scenarios that may or may not indicate compliance violations.
Collegiate sports is big business in the United States. The governing body over college athletic programs, the National Collegiate Athletic Association (NCAA), has a revenue budget exceeding $325 million for fiscal 2001, and distributions to NCAA member schools from media and bowl contracts exceeded $326 million in 1999 (NCAA 2001a). Major universities report significant dollars in the operation of athletic programs, most notably in the highly visible sports such as football and basketball. For example, the NCAA reports that average total athletic revenues for Division I-A institutions were nearly $22 million, with the largest university reporting revenues of $73 million (NCAA 2001a).
With so many dollars at stake and the emotions that run high with sporting events, fans and university employees are sometimes tempted to bend the NCAA's rules to their teams' advantage. One of the primary goals of the NCAA is to ensure integrity in athletic programs. The rules, which include both athletic program and financial issues, are primarily in place to keep college athletics an amateur endeavor.
The penalties imposed by the NCAA for violating its rules and regulations can be severe. Penalties include bans from post-season play, fines, recruitment limitations, loss of scholarships, and exclusion from broad-based revenue distribution (NCAA 2001b, Article 19.6). Most of the penalties have an adverse financial impact on the violating institution, and reduce the school's ability to recruit high-quality athletes. In addition, the reputational damages incurred by a university may be large. In many instances, the success of athletic programs has an impact on the financial health of the entire institution. For example, alumni donations to academic programs are positively correlated with athletic success (Rhoads and Gerking 2000, 248). Furthermore, there are few activities around the university that generate as much attention as athletics, which draw name recognition to the university and perhaps increase the prestige of the school.
Southeastern State University
Southeastern State University is a Division I-A school in Lincoln City with a long tradition of football. The Tornadoes have consistently finished in the top 20 in post-season polls. The school is one of two flagship state universities and is a member of the Southeastern Conference, which is one of the toughest conferences in collegiate football. Tornado fans are considered by many to be among the most loyal in the country. Even during average seasons, the 80,000-seat stadium is often sold out. On game day, the stadium's capacity makes it the fourth largest "city" in the state. When home football games are played, fans flock to Lincoln City causing traffic jams on interstates. Even when the team has a mediocre season, the school receives bowl invitations due to its reputation and loyal fan following. The local newspaper estimates that 10,000 fans consistently follow the team to each away game.
As a member of the NCAA, Southeastern State is obligated to adhere to the rules and regulations of the association. …