1.)
The Levis overlooked both Administrative control and Accounting control objectives. By allowing Betty to execute transactions without Management’s approval they did not satisfy Administrative controls. It is also unclear whether there was any formal official procedure established which Betty was required to follow.
Concerning Accounting control, the Levis first and foremost did not ensure that transactions were recorded as necessary. Betty was apparently given access to assets (cash and merchandise) without Management approval, allowing her to commit prolonged acts of fraud.
2.)
The CPA is currently on retainer with Howard Street Jewelers through the end of the year, so he has a duty to his client