Benchmarking

RentWay

Situation Facing Company

RentWay is the 3rd largest player in the Rent-to-Own industry with 2005 revenue of $516M. The company founded in 1981, currently operates 784 stores across 34 states. A few years ago, RentWay was investigated for fabricating entries in its financial statements that increased the company's earnings for its 2000 fiscal year by about $30 million. This financial reporting fraud was a misrepresentation of the company’s financial condition and led to lawsuit filings from shareholders.

“Rent-Way and certain of its current and former officers have been served with a consolidated class action complaint filed in the US District Court for the Western District of Pennsylvania. The complaint alleges that, among other things, as a result of accounting improprieties, the Company's previously issued financial statements were materially false and misleading thus constituting violations of federal securities laws by the Company, by its auditors and by certain officers” (U.S. PIRG, 2002).

This problem led to the plummet of investor stock earnings from $1.88 to $.88 to $1.14 per share for fiscal year 2000. The problem was instigated by three former executives of the Rent-Way Corporation, who conspired to meet the projected earnings they had reported to Wall Street by making fraudulent entries that underreported operating expenses and misstated income and earnings per share in the company's SEC filings in 1999 and 2000 (FBI website, 2003).

How Company responded to issue

RentWay realized that its internal control systems were not strong enough to prevent the company from misfortunes. Their first response to the above problem was to apply a more stringent internal control system. The Board of Directors formed an Audit Committee to have a key role in monitoring the financial reporting process of the Company. The goal of this committee was not to guarantee the accuracy of financial statements, but rather oversee the work of management, the internal auditor and the independent auditor.

“The Audit Committee will assist the Board of Directors in fulfilling its responsibility to oversee management's conduct of the Company's financial reporting process by over viewing (i) the financial reports and other financial information submitted by the Company with the US Securities and Exchange Commission or distributed to the Company's shareholders, (ii) the annual audit of the Company's financial statements, and (iii) the Company's internal audit program” (EDGAROnline, 2001).

Another step taken by the company was to acquire the services of Lonesource, a leader in providing spend management solutions, to help provide greater visibility and financial control across all their departments. “Lonesource delivers a combination of consulting, training and automation technology to help companies streamline internal controls, more effectively monitor spending, decrease the costs associated with procure-to-pay processes and consolidate spending across multiple product categories into a single invoice” (dBusinessNews, 2006).

Outcome of the company’s response

By using the services of Lonesource, RentWay was able to establish new procurement standards, control spending and refocus internal resources on core business activities. The company was able to consolidate its accounts payable process and streamline company spending. The creation of the audit committee afforded the organization a third system of checks and balances for its financial systems. The audit committee initiated the significant increase in the number of independent outside directors on the RentWay team and the reduction of the percentage of gray directors on the boards' audit, compensation, and nominating committees. So far, RentWay has been successful in this area of compliance.

Oracle

Situation Facing Company

Oracle is the world's largest enterprise software company, and known as the only vendor to offer solutions for every tier of a company’s business-database, middleware, business intelligence, business applications, and collaboration. Throughout its history, Oracle has kept the responsibility of developing corporate governance practices to meet the needs of stakeholders. “The composition and activities of the Company's Board of Directors, the approach to public disclosure and the availability of ethics and business conduct resources for employees exemplifies the Company's commitment to good corporate governance practices, including compliance with new standards” (Oracle, 2006).

Recently, Oracle faced problems with the quality and transparency of its financial information and the integration of financial statements.

“Finance teams have traditionally managed consolidation and reporting separately from compliance certification efforts. This meant that finance teams had to report financial results without complete knowledge of the risks, mitigations, and audit tests that lay behind each financial statement line item, or finance teams had to track these relationships manually” (Oracle, 2006).

The company’s financial reporting was not integrated with internal controls, thereby reducing the confidence of stockholders in the company.

How Company responded to issue

Oracle designed and implemented two systems: the Oracle(r) Internal Controls Manager and the Oracle Financial Consolidation Hub, as part of the Oracle E-Business Suite. The Oracle Financial Consolidation Hub introduces full integration with Oracle Internal Controls Manager to converge financial reporting and compliance certification processes. These performance and compliance management applications are built on a single analytic platform, which provides the framework necessary for consistent processes and certification across disparate source systems (Oracle, 2006).

Outcome of the company’s response

The new applications, built on a single data model, deliver greater visibility and helps increase confidence in financial results by presenting consolidated global financial results with related risks and mitigations. “The new systems will help to ensure the quality and transparency of financial information across the enterprise by integrating the preparation of financial statements with the periodic evaluation of a company's internal controls”