Ummary Of The Issues In The DHB Industries - 990 Words

Summary of the issues in the DHB Industries, Inc. case study. Background: DHB Industries, Inc. (DHBI) case study concerns an accounting and financial reporting fraud. DHBI made protective body armour for the US military. The former CEO of DHBI, David Brooks (DB), misrepresented DHBIs financial statements, mislead the independent auditors in order to conceal his fraudulent transactions and he misappropriated DHBIs assets and funds for personal expenditures. Main Issues: (1) Weak corporate governance and lack of internal accounting and financial reporting control. DHBIs lack of internal control helped DB to manipulate DHBIs profits. DBs intervention in the preparation of financial reports was beyond the Earning Management. DB†¦show more content†¦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 DHB 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 organisation. The Related Party Scheme Brooks also concealed the related party status of Tactical Armor Products (TAP), a company supposedly run independently of DHB by Brooks’ wife but in fact wholly controlled by Brooks. To conceal the scheme and deceive auditors and investors, Brooks created fraudulent multi-million dollar transactions and doctored internal DHB documents. The Accounting Frauds Brooks also engaged in accounting fraud schemes designed to increase the net income and profits that DHB reported in its press releases and filings with the Securities and Exchange Commission (SEC) by falsely inflating the value of DHB’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