Corporate Compliance Report

RUNNINGHEAD: Corporate Compliance

University of Phoenix

July 2, 2008

MBA 560

Introduction

When companies are facing issues dealing with corporate compliance, implementing a system to deal with the compliance and corporate governance issues is the best opportunity for the companies. The companies should develop a process to analyze alternatives and integrate the appropriate opportunity into the companies system. The process includes defining and implementing compliance steps and process. Next, the companies will recommend a preventative solution that incorporates risk mitigation. This part of the process includes using systems and organizations for compliance techniques. Finally, the companies will use a problem solving approach to determine which solutions to implement into the compliance effort.

The companies will begin to implement its enterprise risk management system by developing an appropriate internal control and corporate governance system. In the wake of high-profile corporate scandals and subsequent regulatory legislation, reporting internal controls has become a requirement. These requirements have led to organizations viewing risk management as an area of vital importance.

Rent Way

Situation

Rent Way is the 3rd largest player in the Rent-to-Own industry with 2005 revenue of $516M. The company founded in 1981, currently operates 784 stores across 34 states. A few years ago, Rent Way was investigated for fabricating entries in its financial statements that increased the company's earnings for its 2000 fiscal year by about $30 million. This financial reporting fraud was a misrepresentation of the company’s financial condition and led to lawsuit filings from shareholders.

“Rent-Way and certain of its current and former officers have been served with a consolidated class action complaint filed in the US District Court for the Western District of Pennsylvania. The complaint alleges that, among other things, as a result of accounting improprieties, the Company's previously issued financial statements were materially false and misleading thus constituting violations of federal securities laws by the Company, by its auditors and by certain officers” (U.S. PIRG, 2002).

This problem led to the plummet of investor stock earnings from $1.88 to $.88 to $1.14 per share for fiscal year 2000. The problem was instigated by three former executives of the Rent-Way Corporation, who conspired to meet the projected earnings they had reported to Wall Street by making fraudulent entries that underreported operating expenses and misstated income and earnings per share in the company's SEC filings in 1999 and 2000 (FBI website, 2003).

Company Response

Rent Way realized that its internal control systems were not strong enough to prevent the company from misfortunes. Their first response to the above problem was to apply a more stringent internal control system. The Board of Directors formed an Audit Committee to have a key role in monitoring the financial reporting process of the Company. The goal of this committee was not to guarantee the accuracy of financial statements, but rather oversee the work of management, the internal auditor and the independent auditor.

“The Audit Committee will assist the Board of Directors in fulfilling its responsibility to oversee management's conduct of the Company's financial reporting process by over viewing (I) the financial reports and other financial information submitted by the Company with the US Securities and Exchange Commission or distributed to the Company's shareholders, (ii) the annual audit of the Company's financial statements, and (iii) the Company's internal audit program” (EDGAR Online, 2001).

Another step taken by the company was to acquire the services of Lone source, a leader in providing spend management solutions, to help provide greater visibility and financial control across all their departments. “Lone source delivers a combination of consulting, training and automation technology to help companies streamline internal controls, more effectively monitor spending, decrease the costs associated with procure-to-pay processes and consolidate spending across multiple product categories into a single invoice” (BusinessNews, 2006).

Outcome

By using the services