Scenario:

Katie recently changed employers from a local motorcycle dealership in Colorado Springs to a slightly larger dealership in Denver, Colorado. Katie is now the controller of Mega Wheels Inc. Both dealerships sell Hurley Danielson brand motorcycles. A new Hurley model is flying out of the stores and the manufacturer cant keep up with demand. Each region in the US has a Hurley regional manager that determines how many machines are allocated to each dealership in their region. Since the machines sell easily, success depends on these allocations.

Katies prior employer received about a dozen motorcycles per month and therefore struggled to be profitable. Katie is curious when she finds out her new employer is allocated over one hundred bikes per month. After the first few months another item caught Katiess attention. Every month the President withdraws $10,000 in cash and tells Katie to record it as miscellaneous expense. When she asked several other employees about those withdrawals she learned that the President frequently gives gifts to the Hurley regional manager.

What are the issues Katie must address? How should she proceed?