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Petitioner’s Payment of the Construction Expenses
Petitioner’s accounts payable clerk (the clerk) processed
all invoices forwarded to petitioner. Normally, the clerk would
match the invoices to corresponding purchase orders and then
prepare checks for the appropriate vendors. If purchase orders
did not exist for certain invoices, the clerk forwarded the
invoices to petitioner’s general manager for approval. After
approval, the clerk prepared the checks.
In 1985, petitioner began receiving invoices from various
vendors for lumber and for electrical and plumbing fixtures used
in the construction of the Carnelian Bay residence (construction
invoices). The construction invoices did not have matching
purchase orders. As instructed by Atkinson, however, the clerk
forwarded the construction invoices to Atkinson instead of the
general manager. After Atkinson reviewed the construction
invoices and authorized payment, the clerk prepared the checks
for the vendors. After the clerk prepared the checks for all
invoices (including the construction invoices), the general
manager reviewed the purchase orders (if any), invoices, and
checks and approved the transactions by signing the checks.
After issuing and mailing the checks to the vendors, the general
manager or the clerk returned the construction invoices to
Atkinson with copies of the checks, a procedure inconsistent with
the company’s normal bookkeeping process and record retention
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Last modified: May 25, 2011