On February 28, 2011, the SEC charged DHBIndustries Inc. (DHB), a major supplier of body armour to the U.S.military and law enforcement agencies, with engaging in a massive accounting fraud. The SEC alsocharged three of the company's former outside directors and audit committee members for their complicity in the fraud. The SEC complaint also alleged thatthe directors' actions allowed DHB's David Brooks, Dawn Schlegeland Sandra Hatfieldto divert corporate funds to a controlled entityfor personal gain.Hatfield and Brooks were convicted in September 2010 on various chargesarising out of a $200 million fraud.

1.Using fraud theory, analyse and explain the fraud committed by David Brooks.(10marks)

2.Research and critically discuss whetherthe fraud committed by Brooks could have risked the collapse of DHB Industries Inc. in 2004. Justify your opinion, stating any assumptions. (12marks)

3.(a) Analyse the Balance Sheets and Income Statement (Statement of Operations) for the 2004 and2003financial years using the following methods to detect red flags which suggest the likelihood of financial statement fraud:

(i)Ratio analysis using 5 appropriate ratios

(ii)M Score 5 variable model

(b) Discuss the red flags, if any, which you have detected in part 3(a) above.((5 + 10marks) + 5marks= 20marks)

4.Using fraud prevention theory, critically discuss:(a) how members of the audit committee failed to prevent the fraud at DHB, and

(b) whatstrategies could have been implemented by DHB to prevent the fraud.(2 x 6 marks= 12marks)

5.Assume DHB is a company registered in Australia, frame 5 questions you would askBrooks to consider whether he could be prosecuted for the fraud offence 'false accounting' under Section 83 of the Crimes Act (1958)(Vic).