Levint Inc. Control Framework Analysis

Dear Board of Directors,

An analysis was performed on Livent, Inc.’s control framework and the following internal and external deficiencies were found.

Internal deficiencies:

• Rapid expansion lead to a growing need of capital which in lead to fraudulent statements. Example: revenues were cooked up and expenses were omitted to potray higher profits to shareholders.
• All departments were micro-managed and abused (especially the accounting department) which created a less than ideal work environment.
• Livent’s top executives and the entire accounting department worked together to cover up the fraudulent transactions. Example: A software was developed to record both legit and illicit transactions thereby erasing paper trail and filter bogus data for managements view.

External deficiencies:

• The company misrepresented their transactions as a part of their cover up to external auditors Deloitte & Touché. This in turn made the audit firm the target of criticism.
• Provided false information to the SEC. Example: Charged the kick back amounts as “preproduction” cost.

Upon review of these deficiencies, the following integrated controls need to be implemented by the company to be compliant with the law (GAAP standards) and safeguard assets. These controls embody best practices followed by successful companies across various industries.

Control environment - Management, with Board oversight, establishes structure, authority, responsibility and ethical values for its employees to follow. Employees should demonstrate a commitment to integrity and the firm's values. This is possible only when the tone and workplace environment is set from the top i.e. the firm's executives and board of directors.

Control procedures - Board of Directors should demonstrate independence from management and exercise oversight responsibly. In situations where management executives are performing illicit transactions, it is the duty of the Board of Directors to reprimand management. The organization should establish accountability to successful delivery of tasks and segregate responsibilities for related tasks. Finally, Technology controls should be instituted to ensure no override in software occurs to book dupe transactions.