The CEO and CFO of an automation company were both aware that the company's controller was reporting fraudulent revenues. Upper level executives are paid very large bonuses when the company meets the earnings goals established in the company's budget. While the CEO had pushed the CFO and controllers to "make the numbers"he had not told them to "make up the numbers". Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit fraudulent reportings but also knew how importance of making the numbers established in the budget. He told himself that it just wasn't just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers , the stock price would drop, and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover the fraudulent revenue by underreporting theses future revenues. He concluded that no one would get hurt and everything would be straigthtened out in the near future.

a. explain why the internal control practice of separation of duties failed to prevent the fraudulent reporting.

b. identify and discuss the elements of the fraudulent triangle that motivated the fraud.