CASE:

Tiny Town School District is a small school district that services students from surrounding rural farm areas. The school is located in the mid-south and is the result of multiple school consolidations. The school district is in a low-to-moderate-income area. Most families live paycheck to paycheck, but most do not live in extreme poverty. The school district relies heavily upon fundraising from the Parent Teacher Organization (PTO) to purchase additional school supplies, playground equipment, and classroom furniture. The PTO is made up strictly of parent volunteers and officer positions are filled on a volunteer basis. Individuals can be placed into office without a vote if the position is unopposed or by popular vote during an election if the position(s) have multiple volunteers. All officers serve unvetted. As with all academic school years, when school started back in August, officers for the current academic year were put into place. There were no opposing candidates, so all officers were placed in their desired positions. Sally Sue was named President, Tim Timothy was named Vice-President, Barbara Barnes was named Treasurer, and Will Williams was named Secretary. As September approached the PTO began preparing for their major annual fundraiser. Every fall the PTO and elementary school student body would sell cookie dough. Each student, kindergarten through sixth grade, would take home a booklet and an order form. The students were able to turn their orders in as they finished selling, but all order forms were to be turned in no later than the end of the second week of sales, with pre-payment for all orders. Payment could be made in the form of cash or check. Order forms and payments were turned into their homeroom teachers and then passed on to the Treasurer, Mrs. Barbara Barnes. After the collection of the order forms, Mrs. Barnes then had an additional two weeks to prepare the bulk order that would be placed with the cookie dough vendor. Being that Mrs. Barnes was the Treasurer, she was the only person responsible for collecting the order forms and payments. She collected funds daily and carried the money and order forms around with her on campus during the day and to her home in the evenings. There was no designed work area for the PTO on the Tiny Town campus, so Mrs. Barnes worked wherever she could find available space each day. Some days she worked in the parents center, other days she worked in the library or the elementary office. During this time, she tallied the order forms as they came in and condensed the orders into one large order that could be placed on behalf of the entire school. During the first week of the cookie dough fundraiser, Mrs. Barnes husband was laid off from work. Mr. Barnes unexpectedly found himself without pay for an unknown period of time, but he was actively looking for a job. Mrs. Barnes, being a stay at home mom, was not providing any income to the household either. So the two hoped that Mr. Barnes would quickly find employment elsewhere. During the meantime, Mrs. Barnes started to siphon small amounts of cash from the fundraiser to pay for personal expenses. At first, she took two or three dollars from one or two orders a day. She felt confident her husband would soon be employed again and she would replace the money without anyone ever knowing. After a few weeks, Mr. Barnes was still unemployed and Mrs. Barnes was taking greater amounts of money each day. She had no idea how much she had taken overall, but she knew the bulk order was due to the vendor within the week. She began to worry. On the day the bulk order form was due, the PTO President, Sally Sue, met with Mrs. Barnes to assist in the ordering of the cookie dough. It was quickly discovered that the order form total and the amount of cash collected did not reconcile. In fact, the two differed by nearly five thousand dollars. Mrs. Barnes confessed what had happened to Ms. Sue. Ms. Sue and the rest of the officers in the PTO immediately had a meeting, without Mrs. Barnes, to discuss how to rectify the dilemma. They decided that the PTO would use excess funds from the previous year to cover the missing monies. This would allow all orders to be placed without penalty to individuals who trustingly ordered from the students of Tiny Town School District. Mrs. Barnes was forced to resign from the Treasurers position for the PTO, was required to quit all involvement with PTO, and was made to repay the amount of money that she stole from the school district prior to the end of the academic school year the next May.

Requirements:

Disregard any potential legal issues in this case.

Were there any components from the fraud triangle present in the Tiny Town Case? If so, explain them as they apply to this case.

What principles of internal control could have been implemented to prevent financial misuse of the funds? Instructions: You are to summarize the facts of the case and answer all questions found at the end of the case study.