The Importance Of The Control Environment: Expense Account Fraud At Blue Grass Airport

Abstract

COSO’s Internal Control Framework discusses the components of internal control and how the control environment is the most important component. This paper analyzes how a non-existent control environment led to a massive expense account fraud at a regional airport. This fraud eventually led to the resignation and prosecution of the airport’s top four executives. The paper discusses the findings of the State Auditor’s investigation and outlines the red flags that should have been obvious to the external auditors. The paper concludes by discussing the changes made to the airport’s internal controls in the aftermath of the fraud.