Question

The Chief Financial Officer of your corporation has decided to retire after 25 years of tremendous economic success. As his protégé, it is now your time to take over the company's finances. In an effort to create a seamless transition, you perform an extensive review and audit of all of the corporation's records. During the audit, you find numerous transactions, spread over the last 10 years, funneling upwards of $90,000,000 to a particular subsidiary based in Venezuela. The subsidiary consists of only two associates working out of a small office. Upon a deeper analysis, you find that the corporation is receiving products from its suppliers at half the rate when compared to its competitors (far below what could be possibly considered a "good deal"), and it is only paying export taxes on a small portion of the products it ships outside of the country. What issues concern you, and what steps would you take to help protect the company from liability?

Answer 1

The scenario suggests potential financial misconduct and issues with corporate governance. To address these issues, a full investigation should be carried out, an external audit should be requested, the board of directors must be informed, regulatory authorities alerted if necessary, and internal controls improved to prevent future misconduct.

Step-by-step explanation:

The issues that arise from the scenario provided suggest potential financial misconduct and a lack of proper corporate governance. The transfer of large sums to a subsidiary with limited operations could indicate money laundering, tax evasion, or embezzlement. Below-market prices from suppliers and underreported export taxes can signify fraud or corruption.

To protect the company from liability, the following steps should be taken:

• Conduct a thorough investigation to gain a full understanding of the financial irregularities.
• Engage an external auditing firm to provide an independent assessment of the transactions in question.
• Report findings to the board of directors for corporate governance oversight.
• Inform relevant regulatory authorities if any illegal activities are confirmed.
• Initiate internal control improvements to prevent future issues.

Immediate and decisive action is imperative to limit the company's exposure to legal and financial risks.