The directors of Wheelcorp Pty Ltd. are Reg (also company Chair), Jo (also managingdirector), and Larry. Reg's wife Rose used to work in an accounting office as a clerkwhen she was a student, and ten years ago she persuaded Reg that her old firm and her old boss, Addie, should beWheelcorp Pty Ltd.'s auditor.So ever since then, every yearAddie spends a week with his team at the offices of Wheelcorp. Rose doesn't like toleave her six dogs home alone, so she has for several years been assisting with the Wheelcorp company books and records remotely from home, though (other than the long lunches she enjoyed with Addie)she can remember little of what she learnt in Addie'soffice all those years ago. Jo, as a mechanical engineer, has always had a blind spot when it comes to understanding financial statements, so has always been happy just to pass onwhatever information Rose gives him for the Board of Directors' meeting and financialreports.

Rose has, for the last two years, secretly been withdrawing small and varying amounts from the company's bank account every day and paying them electronically into the account of 'Rose's Canine Retirement Home'. Thesewithdrawals add up to thousands ofdollars annually. A junior member of Addie's team spots this and mentions it inconfidence to Addie on the team's most recent audit visit to the company office, but,other than write a general comment in his audit report noting that 'bank signatories should be reviewed from time to time in future', he does not tell Joor anyone else in the company about the withdrawals, so they continue to occur after the audit report is delivered to the board, which approves it without any of the board members reading it.

Meanwhile, Wheelcorp's fortunes have turned for the worse financially, mainly due to the announcement that government wants to tax users of biofuel-run vehicles to pay for roading costs. Rose is arrested after the junior audit team member (horrified that her bosshasn't revealed the situation in his audit report)leaks the truth about Rose's withdrawals to the press. The directors realise what a large financial hole these withdrawals have left, and Larry suggests that they are probably insolvent and, after trying unsuccessfully to persuade the board to call in an insolvency specialist, he resigns.

The bank, which has lent money to assist with the financing of Wheelcorp's conversionto biofuel vehicle manufacturing, and has taken security over its factory plant and equipment, is getting increasingly impatient as the company has defaulted on its loan instalments. The Bank has never registered any security interest. Among other creditors,Wheelcorp's 100 employees are owed wages arrears.

The good news is that Wheelcorp has won an international Greenovation award which has put its products and future planned products under the spotlight of publicity.

Advise the board of Wheelcorp about the company's position and options at this point,and advise also about the nature of any liability (including defences) for Rose, Jo, and Addie.