Nec weak internal control contribute to Nasdaq delisting Founded in July 17, 1899 Nippon Electric Company, Limited – renamed NEC corporation effective April 1983, both expressed as NEC hereafter Sec filing is mandatory NEC announced it could not complete financial analysis required by Sec due to employee fraud Problem at hand Problem num 1: in 2006 NEC manager had been fabricating $311 million in business deals from 2002. Manager had access to all things necessary to falsify deals. Nec did not provide separation of duties, audits, forced vacations. Problem num 2 In 2006, 10 employees were involved in fraudulent transactions amounting to $18 million. Employees gained 4.1 million in kickbacks. Employees that crated the false deals were the same that confirmed them. Present solution NEC established an internal control system and confirmation is carried out by a 3rd party administrative division Nec could never catch up with SEC and in May 2007 they lost their listing on the Nasdaq Propose Recommendation Create internal controls 3rd party audits Separation of roles to ensure the same person who makes the deals Obtain security clearance for employees with access to funds…background checks, monitor accounts, Electronic financial records Summary Effects of fraud to the company’s reputation Cost involved in rebuilding a company reputation is costly Importance of implementing strict security measures that will discourage employees to commit fraud Tract employee activities improves accountability a. SEC requires mandatory filings b. NEC could not complete the filings due to employee fraud ll. Problem at Hand a. Fraud #1 – In 2006 a manager was found to have fabricated $311 million dollars in business deals from 2002 i. Manager had access to all things necessary to falsify deals ii. NEC did not provide separation of duties, audits, forced vacations b. Fraud #2 – In 2006 10 employees engaged in fraudulent transactions for a total of $18 million i. Employees gained $4.1 million in kickbacks ii. Employees that created the false deals were the same that confirmed them ill. Solution H rd _ _ g a. NEC established an internal control system and confirmation IS carried out by a 3 party administrative division b. NEC could never catch up with SEC and in May 2007 they lost their listing on the NASDAQ IV. Alternative Solutions a. 3’“ party audits b‘ Internal audits n who makes the deals 3fivififiaccess to funds (background checks, monitor accounts, etc)