Accounting Information Systems: The Processes and Controls, 2nd Edition

ETHICAL ISSUES RELATED TO EXPENDITURES PROCESSES (STUDY OBJECTIVE 11)

In the absence of a strong ethical “tone at the top,” encouragement of ethical behavior by all employees, and strong internal controls, there are many opportunities for ethical lapses or fraud to occur in the expenditures processes. Ethical lapses may occur at the upper levels of management when corporate funds are used for personal purchases, as well as at the lowest employee levels when fake travel and entertainment expenses are submitted for reimbursement. While it is not likely that all such ethical problems will be completely eliminated, management can reduce the chances of expenditure fraud or ethics violations by maintaining good internal controls and enforcing ethical conduct.

THE REAL WORLD

There are many examples of frauds related to the expenditures process committed by upper level managers. In addition to the fraud committed at Phar-Mor as described in Chapter 3, Michael Monus, as President and Chief Operating Officer of Phar-Mor, made fraudulent payments on typewritten checks drawn on a special Phar-Mor checking account. The checks supported the World Basketball League (WBL) that Monus founded. The use of a special checking account allowed Monus to bypass the normal purchase order controls, invoice matching system, and computer check writing policies that accompanied Phar-Mor's main operating account, ...