Joseph Smith was the chairman and chief operating officer of Maximum Software Limited, providing software solutions to companies in Manitoba. Joseph owned 40 percent of the company and had several silent partners who sat on the board of directors but did not participate in the company's operations. The chief financial officer of Maximum was Barbara Black, who had been with the company since its inception ten years ago.
Joseph was short of money, so he created a fictitious company and requested that Barbara send monthly cheques of $10,000 to this company, called Network Best, for consulting fees. Barbara agreed since Joseph approves the invoices. The controller, Samuel Chu, was a single parent with three children. Samuel did a normal credit check on Network Best and told Barbara that the company did not exist and the invoices should not be paid. Barbara berated Samuel and told him to keep quiet or he would lose his job. Joseph billed amounts through Network Best for three years.
REQUIRED
Assuming that all of the individuals described are qualified accountants, what rules of professional conduct were violated? What should Barbara or Samuel have done?