ACCTING3501 Corporate Accounting

What do you think Imtech’s Board of Management should have done to mitigate risks?

Ans: The Board Of Management of Imtech had several ways, using which, they could have mitigated the risk in the company. It would have ensured that the company did not face any fraudulent practice in the parent or subsidiary companies (Yue, Beuken & Roelofsen, 2017). The board should have ensured that the structure of the company is balanced, that is, centralization and decentralization of management is in right proportion, in order to ensure that the senior management of subsidiaries do not misuse the authority provided to them and indulge in any kind of fraudulent activity (Cavusgil, et al, 2020). The company gave complete control of small, and even larger and complex projects to local executives, and did not monitor these projects closely. Monitoring of these projects by the board or any senior executive would have ensured that the projects were being carried out properly, and the working capital is being utilized effectively and efficiently.  Establishing a centralised system for accounting and financial reporting of the company and its subsidiaries would have also ensured that the risks are detected and could be mitigated at early stage (van Eenennaam & Michel, 2021).

German subsidiary was able to carry out fraudulent activities because they had a different IT system, which Imtech did not have access to (Prahalad & Doz, 2017). The board should not have allowed different IT systems in the subsidiary companies, and should have ensured that a common IT system was applicable in all the companies. It would have also ensured that all the subsidiaries were connected to the risk management system, known as “Riskmaster”, for early detection of risks in the company (Yue, Beuken & Roelofsen, 2017). Appointment of internal auditor by the board would have also helped in recognizing and mitigating risk in the company, as it would have ensured that all the activities, including financial reporting and accounting of the subsidiaries, was being done properly, along with recognizing any issues with the accounts and reports being presented by the subsidiary companies (Yue, Beuken & Roelofsen, 2017).

References

Cavusgil, S. T., Deligonul, S., Ghauri, P. N., Bamiatzi, V., Park, B. I., & Mellahi, K. (2020). Risk in international business and its mitigation. Journal of World Business, 55(2), 101078.

Prahalad, C. K., & Doz, Y. L. (2017). An approach to strategic control in MNCs. In International Business (pp. 249-257). Routledge.

van Eenennaam, F., & Michel, H. (2021). Fraud Governance Case. In New Living Cases on Corporate Governance (pp. 91-93). Springer, Cham.

Yue, T., Beuken, M., & Roelofsen, E. (2017). Autonomy and Control: The Collapse of Royal Imtech. Rotterdam, Netherlands: Rotterdam School of Management, Erasmus University

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