Premium Essay

Sonoma

In: Business and Management

Submitted By onettic123
Words 696
Pages 3
TO: Audit Committee, Sonoma Corporation

FROM: Gendron Consulting Company

SUBJECT: Risk Analysis

DATE: May 17, 2012

SCOPE OF ENGAGEMENT:

The Audit Committee retained Gendron Consulting Company to determine the top three fraud risks (internal or external) that Sonoma Construction may face in its expansion into Nigeria.

CONCLUSION:

Moving into a developing country with a high rate of poverty creates a very sensitive and volatile environment. After a careful review of Sonoma Construction’s operations, the company faces three specific fraud risks in its expansion efforts into the Nigerian market: fraudulent financial reporting, misappropriation of assets, and bribery.

ANALYSIS:

Typically, an environment is ripe for fraud when there are specific financial pressures on individual employees, the opportunity to commit fraud is present, and a rationalization of the improper conduct is likely to occur. There are several factors in Sonoma Construction’s approach to growth and its planned expansion into Nigeria that satisfy all three elements, above, and present significant fraud risks.

(1) Fraudulent Financial Reporting

Poor economic conditions in Nigeria make expansion into this country risky. The choice to expand may result in a profitable investment or a poor business decision. Founder D.K. Hurd’s attitude may pose a problem if the company’s expansion is not as prosperous as he expects. His “no excuses” attitude and “forward thinking” outlook may put management in an uncomfortable position where they may feel forced to produce numbers that will satisfy his expectations, regardless of whether or not the numbers are factual. As a result, there is a risk that management may intentionally manipulate financial statements by reporting higher revenues, and/or inappropriately reporting expenses. Management may also...

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