On August 31, 2023, the U.S. Securities and Exchange Commission brought an action against Sam Smith, VP of Finance, and Korr Corporation comptroller Jessica Morris, who allegedly helped cover up the fraud. The SEC alleged that Smith and Morris caused Korr Corporation to submit false and misleading financial statements. Smith relied on Morris to reconcile the cash shortfalls and to balance the books. Smith and Morris primarily hid the embezzlement by making false entries in the general ledger. For example, the false journal entries disguised the theft by overstating assets, expenses, and cost of sales, and understanding liabilities and sales. Morris maintained binders that detailed numerous false journal entries that were made to the companys accounting books and records. With these entries, Morris reclassified company funds - with no supporting documentation and no legitimate explanation. Morris also maintained a series of folders that included documentation of over 100 fraudulent transactions that were included in the companys accounting books and records.

Smith and Morris were able to hide substantial embezzlements in part because the company did not adequately maintain internal controls to reasonably assure the accuracy and reliability of financial reporting. Korr Corporations internal controls required Matthew Korr, the CEO, to approve invoices of over $5,000 or more for payment However, Korr allegedly delegated duties done by the CFO to Smith on a regular basis. Korr had little or no educational background in accounting or finance. Many of the cashiers cheques exceeded $5,000, and some exceeded $100,000. However, its controls did not prevent Smith and Morris from processing large wire transfers and cashiers cheques outside of the accounts payable system to pay for Smiths personal purchases without seeking or obtaining Matthew Korrs approval. In addition, many account reconciliations were not prepared, maintained, or reviewed as part of Korrs accounting records. Korrs computerized accounting system was almost 30 years old.

Required: a. List the major internal controls that were absent with Korrs Corporation internal control system.

b. What internal controls should have been implemented or applied to ensure proper controls over the companys recorded transactions.