Of Hurricanes and Harness Racing: The Accounting Fraud at DHB Industries, Inc.

Abstract

ABSTRACT: This instructional case focuses on an accounting and financial reporting fraud involving DHB Industries, Inc., the nation's largest manufacturer of bullet-resistant vests. Three executives of this Securities and Exchange Commission (SEC) registrant, including its founder and CEO, masterminded a large-scale fraud that grossly misrepresented DHB's financial statements. The three executives colluded to conceal their misdeeds from the four accounting firms that served as the company's independent auditors over the course of the fraud. In late 2010, a federal jury convicted DHB's former CEO and COO of multiple counts of fraud and related charges. This case addresses a wide range of auditing issues raised by the DHB fraud, including the identification of fraud risk factors, auditing of related-party transactions, the impact of frequent auditor changes on audit quality, and the internal control reporting responsibilities of auditors.