I think the best publication for you to read is 535, "Business Expenses":

http://www.irs.gov/pub/irs-pdf/p535.pdf

Pages 3 & 4 should answer most of your questions.

Also useful might be 334, "Tax Guide for Small Business":

http://www.irs.gov/pub/irs-pdf/p334.pdf

My educated guess is that what he's doing is illegal. However, I'd also guess that he won't get caught---the line between business and personal expenses is fuzzy, enforcement is lax, and it's a difficult thing to enforce (how does the IRS find out that those dinner & utility bills are really personal expenses?). But, I'd keep your distance. What he's doing is using his business to shelter personal income (and I'd guess that he knows this, but won't tell anyone he knows this so that if/when he's caught he can play the "ignorance" card and blame the accountants).

What is odd to me, is that the company accountants seem to approve such expenses.

Do the owner and "accountants" have the same last name, perchance? :)