Expense Account Fraud

While auditing the financial statements of Petty Corpo- ration, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense ac- count was abnormally high. Further investigation of the records indicated the following:
Since the beginning of the year, several disburse- ments totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.
Swindle, Fox, and Kreip were not Petty Corpora- tion’s attorneys.
A review of the canceled checks showed that they
had been 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 pay- ment of her personal legal fees.
Required:
What control procedures could Petty Corporation
have employed to prevent this unauthorized use of cash? Classify each control procedure in accordance with the COSO framework (authorization, segrega- tion of functions, supervision, and so on).
Comment on the ethical issues in this case.