QUESTION

Theranos, founded in 2003 when Ms Holmes was 19, had claimed its Edison devices could test for conditions such as cancer and cholesterol with only a few drops of blood from a finger- prick, rather than taking full blood samples by needle from a vein.

Ms Holmes raised over $700m in funding for Theranos, but when she tried to pitch the technology to the US Department of Defense in 2012, her pitch was rejected due to the devices' unpredictable results.

The Wall Street Journal began investigating and published a series of exposes starting from October 2015.

Theranos denounced these articles, but by June 2016 it was facing legal challenges from investors, medical authorities and five federal agencies.

In April 2017, the Centers for Medicare and Medicaid Services (CMS) sanctioned Theranos and revoked its clinical laboratory testing certificate, which caused the pharmacy chain Walgreens to terminate its partnership with the start-up and sue Theranos for $140m.

In March, Ms Holmes settled charges with the Securities and Exchange Commission, a top US financial regulator.

The regulator alleged that Theranos, Ms Holmes and Mr Balwani made a series of false and misleading statements in investor presentations, product demonstrations and interviews.

As part of the settlement, Ms Holmes had to return millions of shares to the privately held company and pay a $500,000 fine. She was also banned from serving as an officer or director of a public company for 10 years.

(Extracted from: BBC News, September 15, 2018)

From your further reading of the case above, answer the following questions:

1. Explain Theranoss internal control problems and how this fiasco had initially begun.

2. As a Forensic Accountant, propose the controls that can be put in place by the board to prevent a similar situation from occurring.