EXPENSE ACCOUNT FRAUD While auditing the financial statements of Petty Corporation, the certified public accounting firm of True Blue and Smith discovered that its client's legal expense account was...

EXPENSE ACCOUNT FRAUD

While auditing the financial statements of Petty Corporation, the certified public accounting firm of True Blue and Smith discovered that its client's legal expense account was abnormally high. Further investigation of the records indicated the following:

• Since the begining of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.


• Swindle, Fox, and Kriep were not Pretty Corporation's attorneys.


• A review of the canceled checks showed that they had beeb written and approved by Mary Boghas, the cash disbursements clerk.


• Boghas's other duties included performing the end-of-month bank reconciliation.


• Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.

Required

a. What control procedures could Pretty Corporation have employed to prevent this unauthorizes use of cash? Classify each control procedure in accordance with the COSO framework (authorized, segregation of functions, supervision, etc).

b. Comment on the ethical issues in this case.