Internal Control Framework Case Study

Committee of Sponsoring Organizations (COSO) Internal Control Framework’s Components of Internal Control Requirements

1. There was a lack of proper authorization in the budget process. The superintendent Spigot committed several projects that were not on the budget. For example, rent expenses were not budgeted in that fiscal year, which caused the budget to overrun and increase expenditures for custodial services. Also, the unbudgeted projects ran by the superintendent were not approved by the Board committee, and the Director of Budget Development Robertson did not inform budget managers about budget transfers that directly affected them before doing the large transfers. For example, the purchase of Calliope Hall was executed by Spigot
The Information and Communication systems component of internal control emphasize the importance to use accurate, relevant, and quality information and to communicate the information effectively to support internal controls. Therefore, it is crucial that the accounting information and communication system should make sure that all related transaction accounts and information are recorded accurately in the financial statements and in the proper period. In VBSD’s case, the management failed to maintain accurate information in the budget for the year of 2004-2005 that mathematical errors of $573,000 were found, as a result, inaccurate and misleading financial information was used in the financial statements. Another $2.4 million in errors in the budget also occurred that might result in a deficit. Unbudgeted costs with the contract of KleanKommand were also not recorded. Spigot also miscalculated the salaries and fringe benefits in 2004. Many transfers of the fund were not approved. Despite all these inaccurate information and errors, Spigot told the Board that they would still have a surplus of $2.8 million for 2004-2005. This really shows that there is a failure in the information presented and recorded and that Spigot did not communicate to the Board or City effectively with good information to support internal controls. In fact, he ignored the suggestions made by LHMB and refused to communicate with them about the financial information. A Large volume of budget transfers also caused a problem by resulting in a misleading budget-to-actual comparison. Spigot also recorded accounts in the wrong accounting period and restricted some budget surpluses of the current year for other years’ unbudgeted or under-budgeted