Discussion Questions
1. On a scale 1 to 10, how serious of a problem exists at Kendallville Bank?
2. What is the main issue of the case?
3. What did Davis do to the Allowance for loan and lease losses (ALLL) in the second quarter?
4. Was the change appropriate?
5. How might changing the look-back period from 8 quarters to 12 quarters impact the ALLL?
6. How does changing the look-back period impact the financials?
7. What may have motivated Davis to propose changing the look-back period?
8. Were the discussions at the Credit Quarterly Committee meetings at the appropriate level of detail?
9. What did Davis do to the ALLL in the third quarter? Was the change appropriate?
10. Do using the historical loss rates from only the CRE1 loans distort the ALLL?
11. What may have motivated Davis to propose dropping the CRE2 category at this time?
12. If you were Sandra Renford, how would you manage Dan Davis?
13. What is your assessment of the governance environment at Kendallville?
14. Is Kendallville Bank a typical company with typical challenges, or is there something unusual about it?
15. Was independence of internal audit an issue at Kendallville?
16. Has the corporate culture at Kendallville impacted internal audit’s ability to be objective?
17. What were the effects of LaSalle’s new business activities on the quarterly review?
18. What should Watkins have done when she realized she was in over her head?
19. Was the overall level of skepticism at Kendallville appropriate?
20. What about communication? Who is trying to do it well? Who is avoiding communication?
21. What actions should the board of directors, audit committee, and compensation committee take?
