Tesla in a motor vehicle manufacturing company that was founded in the year 2003. The company has brought changes to the automobile industry by proving that just like gas-powered automobiles, electric vehicles can perform better or equally as good among many other changes. Instead of using dealerships to sell its vehicles, it services and sells them through their own networks that include online orders and acceptance. Tesla also earns revenue from services that are related including software updates and supercharging access; the selling of regulatory credits that come from content sale from manufacturers and credits from energy tax among others. In the year 2010, the company encountered a loss of $150 million after employing less than 1 million employees during the June offering. Tesla, however, registered some improvement and growth after this period. This company is led by co-founder and CEO Mr. Musk Elon known for his bold proclamations and visions. He was granted 5,274,901 stock opinions in order “to become available to him to exercise based on his ability to lead the company toward meeting specific production and performance goals,” (Andiola et al., 2018). Mr. Musk also plans and provides guidance to the company. The main task accorded to the board of directors is to oversee the best interests of the stockholders in the company and take responsibility for risk oversight. Mr. Musk holds the seat of chairman of the board and CEO in which an investment group that works with a pension fund that is union based summoned the company to separate the two seats and prevent immediate members of the family from being part of the board.
Fraud Risk Brainstorming
Tesla operates as an internet start up and the employee culture is labeled as “high risk, high rewarding,” (Fehrenbacher, 2015). The employees enjoy huge salaries but work for long hours in a grueling atmosphere. The company has also been through challenges like struggling to attain some desired levels of production that led to customer delays that are presumed to be lengthy. There has also been the challenge of competitors such as general motors and BMW, among others that have been boasting production levels that are ay higher, have high capabilities of distribution and develop alternatives that are all electric than Tesla. Fraud is an act that s intentional that leads to a misstatement of materials in financial reports. It is more likely in the presence of thee conditions mainly pressures or incentives, rationalization or attitudes and lastly opportunities.
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Brainstorming on the other hand can be described as the process through which thoughts are explored and shared by multiple participants in a given topic. This process is advantageous as it helps to synergize and identify multiple perspectives and ideas within a short period of time. This process is not effective due to reasons like participants consciously or unconsciously failing to engage in idea sharing leading to mental stimulations that are poorly developed. However, to minimize some of these impediments, there is need in the utilization of techniques like prompts to stimulate generation of ideas ( Lynch, Murthy &Engle, 2009). Apart from using the fraud triangle, auditors could create another tool for fraud risk identification referred to as the fraud risk matrix that helps in the connection of the already identified factors of fraud risk and be able to respond towards them.
This case is made interesting due to various factors one of which is that this motor vehicle company Tesla has continued to show great growth and development ever since it as founded apart from that short period in which it experienced less revenue. However, the company could do even better than its competitor like the General Motors (GM), Nissan Motor Company and BMW if brainstorming and use of the fraud triangle are utilized properly by the management. This case provides an insight in leadership and how it affects fraud risks, with the perfect example of Mr. Musk and the board o managers who conform to the first leg in the triangle of fraud on pressure and incentives “this condition is present whenever the management and/or employees have incentives or are under pressure to commit fraud” (Healey & Whalen 1999). The management grants Musk a huge chunk of stock options and he still occupies to seats in the company that is as the CEO and chairman of board of directors while his brother Kimbal Musk serves as a board member in Tesla despite the investment group prohibition of serving on the board by family members to be able to improve the company revenue and production. The employees work for long in this grueling atmosphere although they enjoy big payouts but it still poses fraud risks as they are in constant pressure to please their boss “while the environment may e one of high pressure to the employees” (Andiola et al., 2010).
The case also provides instances in which a manager is able to rationalize fraud this is during some instances like if the competitors are also seen to be doing the same and if business closure or job loss. Although there can be some complications in the identification of rationalization risks, auditor should be keen for possible indicators such as social norms, language that is euphemistic that make dishonesty sound as part of the business activities. Competition from other companies that is termed as an external change in the companies environment is said o threaten the financial stability of an organization and create pressure as the firm struggles to adapt to these changes. It is also interesting that both low and high performing firms are highly exposed to fraud cases because these situations add pressure to inflate or manipulate earnings/asset balances to evade loan defaults or to meet requirements of debt covenants. Tesla as a firm “enjoys greater demand for its vehicles than it can fulfill and has also achieved five-star safety rating by the national Highway traffic safety administration” making it a hotspot for fraud risks (Andiola et al., 2018). This case also provides the best practices included in a brainstorm section which is that it is inclusive of an IT specialist especially in audits, is guided by a forensic specialist or a partner, has extensive discussions on responses on the audit and management of fraud.
References
Hess, M., & Andiola, L. (2018) Fraud Risk Brainstorming at Tesla Motors. Issues in Accounting Education
Lynch, A. L., U. S. Murphy, T. J. Engle. (2009). Fraud brainstorming using computer-mediated communication: The effects of brainstorming technique and facilitation. The Accounting review.
Healy. P. M AND j. M. Wahlen. (1999). A review of the Earnings management Literature and its implications for standard setting. Accounting Horizons.
