Internal Audit

ACC620 – Internal Audit
Case Study #1 Assignment: Le Nature’s Inc. Fraud: What Happened and Why?
Instructions: Read the case and respond in depth to the seven assignment questions listed
below (also listed at the end of the case). To receive maximum points, please be sure your
responses are thorough and well-reasoned. Number your responses to correlate with each
question (#1, #2, etc.)
1. The fraud triangle identifies conditions or circumstances that are often precursors to
financial fraud. Define the three categories of fraud risk factors that are included in the
fraud triangle and provide specific examples of each.
2. Using the fraud triangle, identify fraud risk factors that were present in the Le-Nature’s
case. What implications did these factors have for the reliability of Le-Nature’s
accounting and financial reporting process?
3. The Committee of Sponsoring Organizations of the Treadway Commission (COSO)
internal control framework identifies the five principal components that should be
present in an organization’s system of internal control. Name and briefly describe each
of those components.
4. Relying on the COSO framework, identify specific flaws that were present in Le-Nature’s
internal control. How were principles of COSO’s internal control framework violated by
Podlucky and his co-conspirators? How did the deficiencies in Le-Nature’s internal
controls contribute to the failure of third parties (including Wachovia, leasing
companies, and the company’s independent auditors) to uncover the Le-Nature’s fraud?
5. What stakeholders were negatively affected by Le-Nature’s lack of internal controls and
its leaders’ criminal behavior? How so?
6. Identify specific work roles assumed by management accountants in business
organizations and explain how the individuals occupying those roles contribute to
internal controls, fraud prevention, an ethical climate and thus to good overall
corporate governance.
7. Several accountants or individuals with accounting backgrounds were involved in the LeNature’s debacle. These individuals included Higbee, Lipovich, Andreycak, Podlucky,
Podlucky’s son Jesse, and the individuals assigned to the Pascarella & Wiker
investigative team. Evaluate the overall professionalism of each of those individuals by
applying the four standards discussed in the IMA Statement of Ethical Professional
Practice.