I need help rewording the book answer.

1 Answer the following questions about the audit of Springers Lumber & Supply

a. What deficiencies existed in the internal environment at Springers?

The "internal environment" refers to the tone or culture of a company and helps determine how risk consciousness employees are. It is the foundation for all other ERM components, providing discipline and structure. It is essentially the same thing as the control environment in the internal control framework.

The internal environment also refers to management's attitude toward internal control, and to how that attitude is reflected in the organization's control policies and procedures. At Springer's, several deficiencies in the control environment are apparent:

1.Management authority is concentrated in three family members, so there are few, if any, checks and balances on their behavior. In addition, several other relatives and friends of the family are on the payroll.

2.Since the company has a "near monopoly" on the business in the Bozeman area, few competitive constraints restrain prices, wages, and other business practices.

3.Lines of authority and responsibility are loosely defined, which make it difficult to identify who is responsible for problems or decisions.

4.Management may have engaged in "creative accounting" to make its financial performance look better, which suggests a management philosophy that could encourage unethical behavior among employees.

b.Do you agree with the decision to settle with the Springers rather than to prosecute them for fraud and embezzlement? Why or why not?

Whether or not to settle with the Springers is a matter of opinion, with reasonable arguments on both sides of the issue.

The reasons for reaching a settlement are clearly stated: the difficulty of obtaining convictions in court, and the possible adverse effects on the company's market position.

On the other hand, the evidence of fraud here seems strong. If this kind of behavior is not penalized, then the perpetrators may be encouraged to do it again, with future adverse consequences to society.

c. Should the company have told Jason and Maria the results of the high-level audit? Why or why not?

Whether or not Jason and Maria should have been told the results of the high-level audit is also a matter of opinion. The investigative team is apparently trying to keep its agreement to maintain silence by telling as few people as possible what really happened. On the other hand, Jason and Maria were the ones who first recognized the problems; it seems only right that they be told about the outcome.

Many lessons may be drawn from this story.

1.Auditors should view the condition of an organization's control environment as an important indicator of potential internal control problems.

2.Fraud is more easily perpetrated and concealed when many perpetrators are involved, and especially when management is involved.

3.Purchasing and payroll are two areas that are particularly vulnerable to fraud.

4.Determining whether fraud has actually occurred is sometimes quite difficult, and proving that it has occurred is even more difficult.

5.Frauds do occur, so auditors must always be alert to the possibility of fraud.

6.Auditors should not accept management's explanations for questionable transactions at face value, but should do additional investigative work to corroborate such explanations.