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 Commi ...