Ummary Of The Issues In The DHB Industries

Main Issues: (1) Weak corporate governance and lack of internal accounting and financial reporting control. Debit’s lack of internal control helped DB to manipulate Dab’s profits. DB’s intervention in the preparation Of financial reports was beyond the Earning Management. DB overstated inventory figures and falsified transactions in the journal entries. A lack of independent members of the board of directors, which consisted of DB’s friends and neighbor, contributed to the fraud. There was no real oversight by the board of directors.

DB had full control over them. The directors allowed DB to manipulate financial figures, to conceal transactions with related parties Tactical Armor Products – “TAP’) and mislead the public. (2) Insider trading. DB abused of his position for personal gain. DB and his subordinates chief operating and chief financial officers sold their DHABI shares, which was followed by a sharp decline in the stock price due to the allegation of DHABI manufacturing defective protective vests. (3) Reporting violation, failure of transparency and use of physical threats.

DB exercised full control over every aspect of the corporation’s business and actions. DB controlled the communication with the outsider auditors, and used physical hearts and intimidation to enforce his policies. The auditors’ concerns raised over the years were not addressed while DHABI was under DB’s control. DB used to reward, with bonuses and perks, those who were loyal to him. DB failed to disclose material facts to Dab’s stakeholders. For instance, DHABI failed to disclose that TAP was not run independently of DHABI but wholly controlled by DB.

He used his related entity to misappropriate large amounts of money from DHABI and diverting it to TAP. (4) Ethical Issues DB performed his duties unethically. Poor oversight by the members of the Board permitted weak ethical standards. Lack of ethical culture within the organization contributed to the fraud. Conclusion: One of the main issues was the failure to implement adequate internal control and weak corporate governance. The fact that DB exercised full control over the DHABI corporation, allowed him to orchestrate fraudulent business transactions and mislead the public for his own benefit.

An adequate internal accounting and financial reporting control would have provided a reasonable assurance to Dab’s stakeholders and detected fraud risk factors. DHABI required a board of directors constituted by independent members who would have questioned DB’s management actions and addressed specific concerns. In conclusion a weak corporate governance and a lack of adequate internal control facilitated Dab’s fraud. Thank you. Kind regards, Baby. Summary of the issues of DB Inc. Case study) DB acquired Point Blank Body Armor (made protective body armor) at the correct time when the surge for bullet armor suddenly increased in America in the 1 ass’s. This surge in sales helped Brooks to mastermind an accounting raid to benefit him. This case addresses a wide range of auditing issues raised by the DB fraud, including the identification of fraud risk factors, auditing of related-party transactions, the impact of frequent auditor changes on audit quality, and the internal control reporting responsibilities of auditors.

Illegal private advantage David Brooks (DB) stole few million from Db’s funds to finance a lavish lifestyle. To cover up his theft, Brooks created, and directed others to create, fictitious documents and misclassified these personal expenses as business expenses on DAB’s books and records. Unethical business practice Brook had no ethics as his only motive was to fund his lavish lifestyle under the shadow of his company expenses. His business of making safety vests lacked safety standards and he did all the unethical business practice selfishly.

Weak Internal Control From the above example it is clear that Brook controlled DB solely and without any Interference from any one. He had few of the employees as his allies in the wrongdoings. If anyone tried to interfere then they were threatened or were thrown out Of the organization. The Related party Scheme Brooks also concealed the related party status of Tactical Armor Products (TAP), a company supposedly run independently of DB by Brooks’ wife but in fact wholly controlled by Brooks.

To conceal the scheme and deceive auditors and investors, Brooks created fraudulent mufti-million dollar transactions and doctored internal DB documents. The Accounting Frauds Brooks also engaged in accounting fraud schemes designed to increase the net income and profits that DB reported in its press releases and filings with he Securities and Exchange Commission (SEC) by falsely inflating the value of Db’s existing inventory, adding non-existent inventory to the company’s books and records, and fraudulently reclassifying expenses.

Lying to Auditors and Obstruction of Justice Brooks attempted to cover up several Of the schemes by obstructing the flow of proper information to the audit process. Brooks and others submitted false reports to auditors and even used physical threats to silence them. Conclusion It is due to the fact that David Brooks had the total control of DB, he was bled to do all the possible fraudulent and misleading transaction to fool the stakeholders.

DB’s strong sole internal control meant lack of resistance from the other members of the company and the lack of fair internal audit. The auditors who tried to bring the misleading and fraudulent transaction into notice of the board faced some life threats and were silenced. If any of those auditors have seek advice from their register body or pass on the information to the appropriate government body then it might have triggered a legal enquiry and the situation could have not been this worse.