Cma2-P1-D-Ic and Ethics-Lea P41295Q3

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2010 CMA Part 1 Section D – Internal Controls & Ethics Limited Expenditure Account Estimated time 30 minutes The Board of Directors of a large corporation recently learned that some members of the senior management team had circumvented the company's internal controls for personal gain. The Board appointed a special task force of external auditors and outside legal counsel to investigate the situation. After extensive review, the task force has concluded that for a period of several years the expenses of the company’s chief executive officer, president, and vice president-public relations was charged to an account called the Limited Expenditure Account (LEA). The account was established five years ago and was not subject to the company's normal approval authorization process. Approximately $2,000,000 of requests for reimbursement were routinely processed and charged to LEA. Accounting personnel were advised by the controller to process such requests based on the individual approval of any of the three executives, even when the requests were not adequately documented. The vice president-public relations and his department were in charge of political fundraising activities. The task force determined, however, that only a small portion of the $1,000,000 raised last year was actually used for political purposes. In addition, departmental resources were used for personal projects of the three identified executives. The task force also uncovered an additional $4,000,000 of expenditures that were poorly documented so that even the amounts for proper business purposes could not be identified. The task force noted that these payment practices, as well as LEA, were never disclosed in the Internal Audit Department's audit reports even though company disbursements were tested annually. References to these practices and LEA were included on two occasions in

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