You are the audit manager of RFC, an accounting firm with offices located throughout regional NSW and Victoria, including towns such as Bendigo, Albury, Wagga, Bathurst and Tamworth. RFC is a middle tier firm which provides audit and accounting services across a range of industries. During May 2020 you met with the audit senior of RFC, Wayne Campbell to discuss several findings related to some of RFC's clients.

Pocket Pty Ltd

Wayne tells you about Pocket Ltd, a large client based in Bendigo, primarily involved in property development. Pocket's business model involves purchasing and redeveloping buildings within the central business district of Bendigo which Pocket then leases to businesses. With the impacts of Covid 19 and a general decline in audit revenues in Bendigo, RFC as become increasingly dependent on Pocket to keep its Bendigo operations viable.

The Managing Director of Pocket is Bruce Morse. Bruce is well respected throughout the community and served as Mayor for a term in the 1990s. Bruce has helped Pocket to grow from humble beginnings and exerts significant influence on the board of directors. Bruce also has range of connections to the business community within Bendigo, including the audit partner of RFC, with whom Bruce socialises on weekends.

Wayne tells you that as part of the redevelopment of a building in the CBD of Bendigo, Pocket engaged the services of a local building firm, Prescott Builders. On his way home from work one day, Wayne tells you he drove past Bruce's large home (nestled on top of a hill) and saw a Prescott Builders truck parked outside, and that scaffolding and other building materials were in place on Bruce's home. The next day Wayne said he saw people in Prescott Builders uniforms working on the house, painting, replacing roofing materials and the like.

Wayne then says that as part of his yearend procedures on the audit of Pocket Ltd, he obtained copies of tenders for the work being performed by Prescott on the CDB buildings owned by Pocket. Wayne said his examination of the tenders revealed that Prescott was far and away the most expensive of the tenderers. Wayne said he followed this up by looking at the board minutes and found that Bruce had convinced the board of Pocket to go with Prescott based on their superior quality.

Wayne tells you he is concerned that there may have been some wrongdoing on the part of Bruce. Wayne tells you he has already raised the issue with the audit partner, whose response was to shrug his shoulders and say that there was no issue worth pursuing and even if there was, there was nothing RFC could do about it.

In relation to Pocket, use the AAA model to recommend a suitable course of action for Wayne. Use the following template to guide your response.

American Accounting Association Model Decision-making process

1. Determine the facts The facts are ...

2. Define the ethical issues

3. Identify the major principles, rules, and values

4. Specify the alternatives

5. Compare values and alternatives

6. Assess the consequences

7. Make your decision