Question - Each year near the balance sheet date, when the president of Bargon construction, Inc, takes a 3-week vacation to Hawaii, she signs several checks to pay major bills during the period she is absent. Jack morgan, head bookkeepers for the company, uses this practice to his advantages. Morgan makes out a check to himself for the amount of a large vendor's invoice and, because there is no acquisitions journal, he records the amount in the cash disbursements journal as an acquisition from the supplier listed on the invoice. He holds the checks until several weeks into the subsequent period to make sure that the auditors do not get an opportunity to examine an electronic copy of the cancelled check. Shortly after the first of the year when the president returns, Morgan resubmits the invoice for payment and again records the check in the cash disbursement journal. At that point, he marks the invoice paid and files it with all other paid invoices. Morgan has been following this practice successful; for several years and feels confident that he has developed a foolproof method.

a. What is the auditors's responsibility for discovering this type of embezzlement?

b. What deficiencies exist in the clients internal control?

c. What evidence can the auditor use to uncover the fraud?