The document summarizes a case study about fraud at Kendallville Bank. It describes how the CLO proposed changes to the bank's ALLL calculation to increase reported income and help an upcoming acquisition. This violated the fraud triangle of pressure, opportunity, and rationalization. The CEO's course of action was to amend financial statements, investigate the CLO and CFO, implement new internal controls, conduct an external audit, improve employee training, and enhance communication.

1. Kendallville Bank
Case Study
Anastasiia Shevyreva
Ali Alizada
California State University Los Angeles

2. Outline
• What happened at Kendallville Bank
• The Fraud Triangle
• Organizational Chart
• CEO’S Course of Actions

3. CLO proposed changes to
ALLL calculation
Increase look-back period Combine CRE1 and CRE2

4. Effects on Net Income
1 Year Ago Current Year
Q2 Q3 Q2 Q3
Net Income $2.09 $2.01 $2.12 $2.04
1 Year Ago Current Year
Q2 Q3 Q2 Q3
PLLL $1.02 $0.98 $0.79 $0.76

5. The Fraud Triangle
Pressure
Incentives to
commit fraud:
1) Maintain
Reputation
2) Upcoming
Acquisition
Ability to commit
fraud:
1) Unquestioning
Trust of Upper
Management
2) Weak Internal
Controls
Justification of
Actions:
1) Just Combining
Categories
2) Help in
Acquisition

6. Organizational Chart
Board of
Directors
Audit
Committee
CEO
Head of
Internal
Audit
CFO
Consumer
Business
Head
CLO
Commercial
Business
Head
Chief
Operating
Officer
Senior VP
External
Reporting
Head of
Internal
Audit
Senior VP
External
Reporting

7. Renwood’s Course of Action
• Amendment of filed financial statements
• Investigate CLO Davis
• CFO Kmetko
• Internal control changes:
o System of checks & balances
o Audit Committee

8. Renwood’s Course of Action
• External audit
• Evaluate employee’s qualifications
• Train the Head of Internal Audit in ALLL
• Improve overall communication

9. Any Questions?