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Unformatted text preview: 1 | P a g e CASE STUDY: IDENTIFYING FRAUD RISK FACTORS This case is an exercise in identifying fraud risk factors as an indicator of potential fraud risks. Identifying fraud risk factors is a critical step in the process of identifying fraud risks and schemes. Requirements 1. Fraud risk factors are events or conditions that indicate incentives/pressures to perpetrate fraud, opportunities to carry out the fraud, or attitudes/rationalizations to justify a fraudulent action. The following example information sources related to Elite Company are attached: a. Corporate governance ratings report (begins on page 2). b. S&P industry report (begins on page 5). c. SEC comment letter (begins on page 8). d. Press release and new articles (begins on page 10). e. Adverse analyst report (begins on page 12) 2. Read all of the information that follows to identify potential fraud risk factors. Document each risk you identify including what type of fraud risk factor and why. For example: Fraud Risk Factor Type Why Decreasing Margins on Products Pressure Declining margins put pressure on employees to commit fraud to meet gross profit targets. 3. Find as many fraud risk factors as you are able- but please focus on those that are most directly related to the material available (i.e. do not speculate on matters that are not based on the information sources provided) 4. You are welcome to document your findings in Word or Excel using the format above, or any other format as long as it is clear. 5. The assignment is due Tuesday, September 27 at 6:00 pm (ie. BEFORE CLASS! ). 6. Your assignment will be turned into the Dropbox available on the eCollege classroom. Corporate Governance Ratings Report Elite Running Inc. CGQ Governance Profile Shareholder Meeting Date: May 26, 2004 Most Recent CGQ Profile Update: June 4, 2004 CGQ Corporate Governance Quotient INDEX RANKING INDUSTRY RANKING 54.7% 67.5% Elite outperformed 54.7% of the companies in the Russell 3000 and 64.4% of the companies in the Retailing group. Board Issues Sub- Score: 4 DETAILS Audit Sub-Score: 1 DETAILS Takeover Defenses Sub-Score: 3 DETAILS Compensation/Ownership Sub-Score: 3 DETAILS (Companies are ranked in quintiles relative to their index and industry group. Sub-scores are given from 1-5. A score of 5 indicates a company is in the top quintile in a governance area. A score of 1 indicates a company is in the bottom quintile in a governance area.) Board Issues Sub-Score Governance Practices Positively Impacting Ranking Governance Practices Negatively Impacting Ranking The CEO serves on the boards of two or fewer other companies Board members have express authority to retain outside advisors One or more director (but less than a majority of the board) has participated in an Institutional Shareholder Services (ISS) accredited director education program All directors attended at least 75% percent of the board meetings in the past year or had a valid excuse for their absences if less than...
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