University Finance Report: Magnum Hunter and Provectus Analysis

This report provides a critical analysis of the internal control failures of Magnum Hunter Resources and Provectus Biopharmaceuticals, based on the provided SEC documents. The analysis examines the weaknesses in internal controls that led to financial reporting violations and subsequent re...Read More

Running head: CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND
PROVECTUS
Critical Analysis of the Magnum Hunter Energy and Provectus
Name of Student:
Name of the University:
Author Note

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
Table of Contents
Introduction................................................................................................................................3
Case of Magnum Hunter Resources...........................................................................................3
Case of the Provectus Biopharmaceuticals, Inc.........................................................................5
Conclusion..................................................................................................................................7
Referencing................................................................................................................................8

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
Introduction
In this report a detailed analysis of internal control of the Magnum hunter resources and
Provectus Biopharmaceuticals has been conducted in order to determine the efficacy of the
internal control existing within the system (Badara, & Saidin, 2013).
Case of Magnum Hunter Resources
Magnum Hunter Resources is a Delaware corporation with it’s headquarter is in
Texas. The entity is involved in the business of the exploration of oil and gas in the United
States. During the year from the starting of 2010 to the mid of 2011, MHR
overtake a many of oil and gas refineries and leasehold mineral interests,
the total acquisition worth is estimated to be $650 million (Choi, Hogan, &
Lee, 2013). Due to this fast growth and the manpower problem in MHR’s
accounting department. The critical weakness over its internal control for
financial reporting is manifested.
For example, the occasions in which reconciliations were not made, evaluated, they
are unsuccessful in documenting the conclusion of necessary monthly administration
assessments, and the accounting and finance team had a substantial suspension in making
financial statements and reports due to “insufficient and inappropriately association of
staffing work force.
However, what MHR disclosed in its 2011 form 10K is that they
assessed the effectiveness of their internal control over financial reporting
based on the COSO framework, and eventually, CEO and CFO concluded
that their ICFR were effective as of December 31, 2011. The company faces the

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
following problem like when the company is expanding its business operation then the
workforce or the employee of the company has not increased with respect to the operation of
the company, as a result existing employee of the company could not complete the task on a
timely basis (Clinton, Pinello, & Skaife, 2014).
As a result of this, the auditor of the company Joseph Allred, experienced the
difficulties in the preparation of the financial statement. The report issued by the auditor
revealed about the mismatch of the two balance-sheet and the consolidation of the financial
statement of the company. Further from the evaluation of the case of the company, it was
revealed that the external auditor has failed to provide the external auditing services to the
company, also unsuccessful in conducting the audit as per the auditing standards, which is in
contrary to the rules, regulation and guidelines.
As per the provision of auditing, an unqualified opinion should be expressed when the
auditor concludes that the financial statement show a true and fair view of the entity financial
position and performance.
An unqualified opinion also demonstrate that:
 The financial statement have been prepared using the generally accepted principles,
which have been consistently applied.
 The financial books of account comply with the relevant statutory requirements and
regulation.
 There is adequate disclosure of all material matters relevant to the proper presentation
of the financial information, subject to the statutory requirement.

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
So from the analysis we it can conclude that financial statement of Magnum hunter
resources corporation has not prepared its books of account as per the relevant statutory
requirement of law i.e. they have not complied with the appropriate auditing standard.
The auditor should check the internal control existing within the system, through the
following procedure
 Auditor must ensure that each important transaction of the entity has been executed in
accordance with the management general or specific authorization.
 All the transaction are promptly recorded in the correct amount in the appropriate
accounts and in the accounting period.
 Auditor should ensure that assets are safeguarded from the unauthorized access, use
or disposition.
 The recorded assets of the entity must be scrutinized the assets at the appropriate
interval.
 The duty of the auditor is to ensure that how reliable the reports, records and the
certificates to the management.
 The extent and depth of the examination that the auditor needs to carry out in the
different areas of accounting.
 The auditor should assess the areas where the control is excessive and the control is
weak.
 The auditor must understand the internal control system of the organization and based
on that understanding must planned the auditing procedure of the company (Newton,
Wang & Wilkins, 2015).

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
Case of the Provectus Biopharmaceuticals, Inc.
The penalty imposed on Provectus was flatter, as compared with Magnum Hunter
Resources as they are only required to stop and discontinue from committing any violations
and any future violations similar to statutory laws and rules, and necessary to fulfil with the
undertakings they made in the order (Clinton, Pinello, & Skaife, 2014).
The illegal conducts are the results of the inadequate and unsatisfactory internal
accounting controls with respect to the cash advances for travel, entertainment,
reimbursements expenditure and also because of the inadequate controls that were not used,
for evaluation and authorization of payment to employees made through check or wire, which
comprise travel advances and expenditure recompenses. In the coming next year in 2016 and
2017, Provectus revealed in its sporadic reports that the report had material weaknesses in its
internal control over financial reporting associated to travel advances and expenditure
recompenses and that its internal control as compared to its financial reporting was not
operative and efficient.
From the analysis of the case of the company, it was revealed that Provectus
intentionally understated the compensation made to Dees and Culpepper by not disclosing the
individual advantages and privileges given to them, and the annual reports parodied that
Provectus’ internal control over financial reporting was effective. Provectus has violated the
provision of Section 14(a) of the Exchange Act and Rule 14(a3) as well as the Section 13(a)
of the Exchange Act and Rules 13a1 and 12b20 (Feng, McVay, & Skaife, 2014).
In addition, Apart from this Provectus has been unsuccessful in recording the real
nature of the individual advantages and privileges given to Dees and Culpepper in the
company’s books, records, and accounts, they have also desecrated Section 13(b)(2)(A) of
the Exchange Act. Lastly, since Provectus has been unsuccessful and abortive to apply

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
adequate internal accounting controls regarding travel advances and expenditure repayments,
Provectus has violated the Section 13(b)(2)(B) of the Exchange Act.
However, after Provectus discovered the material weakness in their internal control
with respect to the financial reporting and the material misstatement about their
reimbursement remunerated to Dees and Culpepper. Provectus has made many hard work to
collaborate with the SEC and adopted different corrective action, which include appointing
outside counsel and forensic accounting firm the comportment an investigation, removing its
CFO and interim CEO, trying to gather reimbursement from its CFO and CEO, executing
new internal control process and strategies relating to travel and expense repayment, and
many other solution that can be used to stop future desecrations. Therefore, sanction
imposed by the government on the Provectus is important in order to curb
the illegal and unlawful action of the company.
Conclusion
From the analysis of the above report, it is concluded that internal
control of an organization play an important role in determining the
effectiveness of the system. In the given case, Provectus received a
punishment which is small due to the initial consciousness and
complaisant behaviour, when they comprehended such internal control
weakness prevailing within the company. Apart from this, MHR ended up
by paying a big fine to SEC because of their several violations of
legislative law and the absenteeism of their remedial efforts. Therefore
every corporation must prepare their financial statement as per the
relevant accounting standard and must comply with SEC rules, regulation
and guidelines.

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Referencing
Badara, M. A. S., & Saidin, S. Z. (2013). Impact of the effective internal control system on
the internal audit effectiveness at local government level. Journal of Social and
Development Sciences, 4(1), 16-23.
Choi, J. H., Choi, S., Hogan, C. E., & Lee, J. (2013). The effect of human resource
investment in internal control on the disclosure of internal control
weaknesses. Auditing: A Journal of Practice & Theory, 32(4), 169-199.
Clinton, S. B., Pinello, A. S., & Skaife, H. A. (2014). The implications of ineffective internal
control and SOX 404 reporting for financial analysts. Journal of Accounting and
Public Policy, 33(4), 303-327.
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.

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CRITICAL ANALYSIS OF THE MAGNUM HUNTER ENERGY AND PROVECTUS
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Groomer, S. M., & Murthy, U. S. (2018). Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and
Application (pp. 105-124). Emerald Publishing Limited.
Newton, N. J., Persellin, J. S., Wang, D., & Wilkins, M. S. (2015). Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), 603-623.
Vovchenko, N. G., Holina, G. M., Orobinskiy, A. S., & Sichev, R. A. (2017). Ensuring
financial stability of companies on the basis of international experience in
construction of risks maps, internal control and audit. European Research Studies
Journal, 20(1), 350-368.