Problem
From the violet bay school district deficit of 2005: evaluating internal control and identifying risks
I need answers to the following questions:
I. Based on Part II of the case, describe the VBSD's Control Environment, the first component of internal control (per the Committee of Sponsoring Organizations (COSO) of the Treadway Commission's Report and referred to in AU 314, noting areas of concern that would impact the planning and conduct of the audit.
II. Consider the three conditions usually present when a fraud occurs: incentive/pressure to perpetrate fraud, opportunity to perpetrate fraud, and attitude/rationalization to justify the fraudulent activity. Identify key indicators that fraud might have occurred in the VBSD.
III. Relying on the guidance in AU 316, would the VBSD administration's unreliable financial reporting be considered as resulting from fraud, error, or both? If you believe fraud was evident, what broad scheme(s) was/were perpetrated? How? By whom?