Discuss how SOX 404 and modern guidelines (most notably the 2013 COSO IC framework) could have helped prevent Benny's bad behavior. Back in the early 1900s, a fellow named Arthur started work in a mailroom at an up-and-coming company in Chicago. Arthur was an ambitious fellow, and eventually became as the president of the firm, James H. Rhodes & Company. Arthur hired his brother Benny to be his Chief Financial Officer (CFO) and placed other members of the family in key management positions. As the company moved into the 1920s, Benny was a model employee; he worked long hours, never took vacations, and made sure that he personally managed all aspects of cash functions. For example, he handled the entire purchasing processfrom issuing purchase orders through the disbursement of cash to pay bills. He also handled the cash side of the revenue process by collecting cash payments, preparing the daily bank deposits, and reconciling the monthly bank statement. The end of the 1920s saw the United States entering the Great Depression. Because of this, Arthur and other managers took pay cuts to keep the company going and avoid lay-offs. Benny, however, was somehow able to build a new house. He dressed in fine new clothes and seemed unbothered by the economic downturn. His family continued to enjoy the theatre, new cars, and nice clothes. Arthur's wife became suspicious of Benny's good fortune in the face of others' hardships, so she and Arthur hired an accountant to review the books. External audits were not yet required for publicly held companies, and the SEC had not yet been formed. Jim, the accountant, was eventually able to determine that Benny had diverted company funds to himself by setting up false vendors and having checks mailed to himself. He also diverted some of the cash payments received from customers and was able to hide it by handling the bank deposits and the reconciliation of the company's bank accounts. Eventually, Jim determined that Benny had embezzled about $500,000 in 1930 dollars (about $46.67 million in today's dollars). Arthur was furious, and sent Benny "away." Arthur sold most of his personal stock holdings in the company to repay Benny's embezzlement, which caused him to lose his controlling interest in the company. Eventually, he was voted out of office by the Board of Directors. Jim, the accountant, wrote a paper about his experience with Benny (now referred to as "Bad Bad Benny" by the family). Jim's paper contributed to the increasing call for required annual external audits for publicly held companies. Arthur eventually reestablished himself as a successful stockbroker and financial planner. Benny "disappeared" and was never heard from again
