Barbara Belmont, a partner in B&U CPAs, was recently in a discussion with a member of the

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Question:

Barbara Belmont, a partner in B&U CPAs, was recently in a discussion with a member of the board of directors of the Blue Grass Airport about changing audit firms. Certain negative events have led the potential client to feel that they may need a “fresh start” with a new CPA firm. Barbara is in a hurry to run to another meeting. So, she has handed you a newspaper article about the potential client and has handed you some notes she made about questions the client asked (she has written those questions below). She has asked you to put together your thoughts about the answers to these questions in a memo so she can have some answers for the client before the next meeting. Required: Read the article and the partner’s questions and write a memo addressing the questions. Make sure you appropriately cite any thoughts that are not your own!

Barbara’s Notes from the Meeting

1. Where was the board of directors? Did they fail? What role should the board play in monitoring the behavior of management and controlling credit cards?

2. The client needs some help in developing policies and procedures to better control credit cards.

3. Should this have been caught by the previous CPA firm? This was discovered by the state auditors after performing one audit! The previous CPA firm had audited the airport for four years.

Below is the article, please read in order to answer the questions and provide bullet points:

Airport Executives Rack Up Lavish Expenses!

LEXINGTON, Ky. (AP)—A small commercial airport in Kentucky—and the taxpayers who support it—picked up top executives' tabs in recent years for Hannah Montana concert tickets, Nintendo Wii video game bundles, and even a $4,400 gentlemen club check, according to a state auditor's report.

The report released Wednesday outlines indulgences ranging from pricey electronics and exercise equipment to lavish meals and champagne. In three years, officials tallied more than $500,000 in questionable personal expenses. [Author's note: general fund expenses were approximately $10,000,000 annually.]

Kentucky Auditor Crit Luallen said the former executive director at Lexington's Blue Grass Airport created a culture of wasteful spending so vast, employees sometimes were paid twice for the same expense and used airport credit cards as if they were personal checkbooks.

"I don't think we have ever seen an audit where so many different individuals involved in the management of a public agency abused the trust with such arrogance and lack of ethical standards," she said.

Luallefi says•she has forwarded the case to the Kentucky attorney general, the U.S. attorney's office, and the FBI.

Although the audit only covered the past three years, it does refer to one of the more glaring examples reported by the Herald-Leader: a $4,400 charge Michael Gobb and two other directors incurred at a Dallas strip club in 2004.

The charge, which appeared on the credit card statement of the airport's director of planning, was listed as going to Millennium Restaurant. The word "marketing" was handwritten next to the amount. The Associated Press obtained that receipt and others through an open records request.

The audit found that airport employees also used the coffers for tuxedos and other expensive clothing; more than 400 DVDs—many of them currently missing—for the internal airport library; $ 14,000 in holiday hams given out as gifts; and $7,400 for a NASCAR driving experience excursion for staff described as "team building."

More than 92 percent of the things Gobb charged to his airport card lacked proper documentation, Luallen said.

While Luallen acknowledged that Gobb was responsible for the free-spending culture, she said the board and its public accounting firm should have supervised the airport more closely.