"The EDP function ran in a mode that courted disaster but left the EDP staff apparently isolated from knowledge of the fraud. An open shop functioned where a central staff developed and ran the primary programs for the business, but programmers in other departments such as actuarial could also write and run their own programs that had access to the live data base of insurance policies. The special processing required to carry out the fraud could have been done, and, it is claimed, was done by the programmers outside of the central EDP staff.

"It is also claimed that EDP management had proposed on numerous occasions the establishment of an internal audit group for the EDP environment, but it was always rejected by top management.
"The EDP staff also observed the external auditors from a revealing point of view. The auditors were apparently handed EDP listings of policy records printed from the master files and accepted then as documents of record since they had no capability or skills to directly access the master files in the system themselves. When the auditors happened to select a fake policy for confirmation, they were told that policy folder was in use by somebody in the company and would be available the next day.
"The way it worked was that Equity's head, Stanley Goldblum, set standards for grow th in income, assets, and earnings. The desired quarterly and annual profits were relayed to Alan Green through Lewis and another executive. . . . Green would then go on the computer and crank out the necessary fictitious policies." \(\phi\)
\section*{Required:}

a. What controls were violated in this case?

b. As auditor of Equity Funding, how would you have reacted to the above?