Fraud Risk Assessment of Tesla Motors

Fraud Risk Assessment of Tesla Motors

Question one

a,

based on the case study, the representation of Tesla’s leader is summarized as a “real-life Iron Man” as derived from a comics’ superhero movie. The connotation of the phrase sets the tone at the top as aggressive, overly competitive, and high achieving. Mr. Elon Musk heads Tesla and chairs other boards in different companies. He can, therefore, be said to be innovative, high achieving, risk-taking, and visionary. He made a vow committing to propel Tesla and leverage competition with giant tech company apple within ten years.

The leader, Elon Musk, sets a “tone in the top” that may augment the occurrences of fraud risks overtime. His nature of leadership, which is goal attaining, connotes high pressure on the employees, which might result to risk factors of pressure or incentives. It is a situation where employees may resort to “do whatever it takes” to accomplish goals. Due to the pressure to attain goals, the CEO may be forced to use underhand means to perform tasks due to his goal-achieving nature.

b,

I would describe Tesla’s organizational culture as one that usually takes a considerable risk in anticipation of high achievement. Therefore, the company sets lofty goals and the employee’s work long and gruesome hours to achieve them. Tesla presents itself as a highly reputable organization; hence there is pressure to perform. The risk factors inherent in this setup is a rationalization for fraud. Employees might resort to underhand methods to seek recognition and rewards. Moreover, the free use of technology might call for many fraud cases by the employees.

c,

There exist several fissures of weaknesses in the organization’s code of conduct. The clause that explains “conflict of interest” permits the board of directors to act contrary to the company, which could lead to a fraud case. The classification of the “off the books” in record-keeping bring a contradiction in the event anyone is allowed to alter them. There is a weakness since individuals interpret laws differently. Consequently, the situation births severe ethical issues. Moreover, the management of the organization is handed waive. If the board of directors approves the reservation, the management or executives may go contrary to the clauses of the code.

d,

The board is comprised of individuals who enjoy a close relationship with the company CEO. Musk’s brother serves as in the capacity of a member of board directors in both SpaceX and Teals. One of the members of the board is a former staff in SolarCity, a company that Musk used to chair its committee. Arguably, there is a close relationship in the board membership, which might deter the independence needed to look into the needs and interests of shareholders. This culminates in a weakened connection when the interests of shareholders and those board members do not align.

Question two

a,

As obtained from the year reports, Musk obtained 5,274, 901 stock options to ‘vest’ his goals in 2012. The available ten vesting trances exert immense pressure on the leader of the company to finish a huge number of installments in order to obtain the allocated compensation. The reward in the above is situation positions Musk to strive and obtain the tranches with less or no realization of its impact on the clients and shareholders.

Based on the annual report, Tesla’s staff are able to get the common stock by committing 15% of the remuneration at a subsidized stock price. In this analogy, the staff is able to purchase the companies’ 85% of common stock during the opening and closing of the session. Stock subsidiaries enable employees are offered stock options in place of reviewing and or increasing their salaries. The actions may potentially provide the avenue for the commitment of fraud. It is conceivable that employees would prefer to maintain the stock program and significantly to rationalize fraud.

b,

An analysis of exhibition 3 shows that the stock results of Tesla are going down and that there is poor performance. As such, it would mean that the staff has to contend with reduced salaries. The mitigation scheme to neutralize the poor performance of stock would be committing fraud to close the gap. Inadvertently, Tesla’s staff would be under the temptation of manipulating stock prices, even in a situation where the performance is not as expected. Again, it is possible for the staff to give inaccurate financial data and present Tesla in a skewed image to the investors.

Question three

a,

Tesla engages in a variety of revenue generation ventures such as the manufacture, design, and sale of the high-performance electric car. Although there are other products such as energy, the anchor revenue for the organization is the manufacture and sale of the vehicles. Tesla seeks to leverage its competitiveness through expansion to enjoy the benefits of economies of scale. The revenue data distributed in Tesla’s annual financial reports indicate income through extensions of financial firms. Money also comes from the leasing dealership of automobiles and the credit pumped to the market competition.

b,

The organization has the ability to get financial assets through the use of fraud to make the same investments in a market economy. Ideally, the organization can overhaul and obtain its maintenance and service plans by utilizing fraud.

Question four

a,

The external business environment is marred with different types of risks that could negatively impact the operations of Tesla. An increase in the price of the raw material by the suppliers would connote an increased cost of production. Moreover, the dynamics of the business dealing is marred with currency fluctuation, which has the capacity to impact the process of Lithium batteries that the organization utilizes in making its electric cars. He currency pf exchanges that buy the battery cells is Yen. Thirdly, consumers have the ability to dictate the price of a product, especially in a market situation where there is a competitor, and thus alternatives. The organization has gotten overwhelmed made a note of the delay in delivery. Customers claim compensation through purchase at a lower price hence plummeting the profits garnered by the organization.

The above external environment risk may pit the organization to reduce manufacturing time so as to meet the demands. The same pressure is exerted to suppliers, an aspect that increases the volatility of the raw material, raising their prices. The organization is forced to provide misstated financial report to attract investors

b,

The 2015 annual report offers evidence-based communication that the organization can expand locally and internationally. Tesla’s business model is the innovation that leverages competition by coming up with unique products. However, Tesla’s products and services are costly, which means a failed expansion would derail its operation ability. The consequence would entail providing financial misstatement to lure investors hence causing a fraud. If the above would occur, the organization might fail the going concern and offers vehicles that have not been subjected to safety check.

c,

Tesla uses a vertical integration of activities between the partners and suppliers in the fulltime procurement of its production. The style utilizes above may derive fraudulent cases, especially where a partner may seek to obtain some gains from the partnership.

Question Five

a,

Exhibition 1 and 2 indicate modifications in accounts in consecutive years. The salary articulation of the partnership, just as its financial record, demonstrates an unstable result of the firm, which is legitimate by the general changes in the records. The report shows that the performance plummeted in2015 risking the investors to pull out their funding. The utilization of the subsidized stock prices to the staff levels its ability to manage the stock costs. The ascent in the stock costs would likewise profit Elon Musk from the high remunerations that he would get. Accordingly, the strain to ensure that the organization records better performances promote fraud risks.

b,

comparatively, Tesla’s performance supersedes that of BMW and ZAP. However, the above does not apply when, for the case of net income increment. On the other hand, SolarCity reflects performance results similarly to Tesla. All in all, the ratios, trends, and figures represented by Tesla motors are not coherent.