Ummary Of The Issues In The DHB Industries

Topics: Fraud, Business ethics, Ethics Pages: 3 (980 words) Published: March 3, 2015
Summary of the issues in the DHB Industries, Inc. case study.  
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 DHBI's financial statements, mislead the independent auditors in order to conceal his fraudulent transactions and he misappropriated DHBI's assets and funds for personal expenditures. Main Issues:

(1) Weak corporate governance and lack of internal accounting and financial reporting control. DHBI's lack of internal control helped DB to manipulate DHBI'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 neighbour, 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 DHBI shares, which was followed by a sharp decline in the stock price due to the allegation of DHBI 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 threats and intimidation to enforce his policies. The auditors' concerns raised over the years were not addressed while DHBI 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...
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