Investigating the accounting fraud at US foodservice

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The case examines the accounting fraud at us foodservice (usf), a subsidiary of the Netherlands in detail the systems followed by USF to account for promotional allowances. The case highlights the role of USF's management in the accounting fraud who internationally booked higher promotional allowances to show higher income in order to get extra bonuses. It also examines the reasons that lead to accounting frauds such as poor financial & accounting controls, weak internal control system of the parent company over its subsidiaries, lake of transparency in accounting producers and linking of management's compensations with the achievement of revenue targets.

The case then describes the measures taken by Ahold to regain share holders confidence & strengthen its control systems 7 governance practices.

ISSUES

Understanding the accounting of supplier rebates in the food retailing business.

Study the reasons for lack of proper rules & standards to accounts supplier rebates due to which it is susceptible to misappropriate& fraud.

Examine & analyze the accounting scandals at USF and the circumstances that led to the continuation of fraudulent accounting practices.

Study the reasons for overlooking the observation of financial diligence them by Ahold during acquisition of USF.

Examine the necessity of centralized control system for companies like Ahold , which have grown over the years through acquisitions.

Analyze the corrective measures taken by ahold to regain shareholders confidence.

INTRODUCTION

USF was the second largest foodservice distributor in the US. According to John Hatherly, Head , Global analysis, M&G Assets management , Ahold's accounting irregularities revive unpleasant memories. Ahold is been managed by the Hijin family for over three generations. Albert took over management of his father's grocery store in Amsterdam in 1887, at the age of 22. Albert's untiring efforts made the store very popularly for its high quality, reasonably priced products & services. Soon Albert opened a second store in Netherlands by 1987, store count increased to 23. Internationally food giant Ahold is most commonly known in the United States by its grocery chains. Company employs approximately 257140 workers & reported revenue $ 56.1 billion recently.

COMPANY DETAILS:

TYPE : Public

FOUNDED : 1983

HEAD QUARTERS: Amsterdam, the Netherlands.

INDUSTRY : Retail.

SERVICES : Super & hyper market.

KEY PEOPLES: John Rishton (ceo), Rene Dahan (chairman)

THE SCANDAL-:

The total accounting fraud that led to the reduction in Ahold's pre tax earnings to the tune of us $ 966 million, Ahold's wholly owned subsidiaries US food service (USF) accounted for about US$ 856 million. In February 2003, after Ahold announced that the earnings of USF for the financial year 2000&2001 were over stand, its shares fell by more than 65% to a15 year low of €3.43 on February. The market capitalization of Ahold plunged to € 3.3 billion from € 30 billion in the end of 2001. The media was quick to term Ahold 'Europe's Enron', while analysis downgrade the company's stock. . This is the main driver of the share price today as investors just cannot trust the company's figures.

THE INVESTIGATION

Immediately after the accounting irregularities in USF were reported by Deloitte, on Feb 2003 the company authorized an investigation by law firm white & case LLP and by forensic accounting advisors from protiviti inc. After that lason & Silberberg price water coopers conducted additional investigations of the accounts of USF. According to SEC, USF artificially inflated its operating income by recording promotional allowances that were not earned in the period recorded in many cases were entirely fictitious. After investigating of over a year by SEC, four of the former executives in the USF, Kaiser, lee & carter former vice president were indicted. The SEC accused these executives of pocketing huge bonuses for fraudulently was tied to meeting huge bonuses as they claimed to have meet revenue targets for 2001&2002. Hoeven resigned, Anders moberg from IKEA after 2003, Ahold announced that a debt of € 920 million would be paid back and the financial order to prevent any more accounting frauds. A new division 'Business control for Retail' was made real estate strategies.

Ahold has a history of alleged fraud, discrimination & labor abuse.

Widespread public scandals false advertising & inflating earning by hundreds of billions of dollars have made Ahold less than credible.

Ahold has been criticized for a lack of action regarding the plight of agricultural works around the world who earn poverty wages.

AFTER 2003 SCANDAL:

Company announced plans & financial targets resulting from its retail review that begins in the end of the year. The plans announced are designed to accelerated identical sales growth, improve profit returns & strengthen the company's foundation for future expansion, creating additional values for its share holders. Sales declined 11% to € 405 million over the full year 2004; Ahold's net sales were € 52 billion.

Divest U.S foodservices.

Appoint European chief operating officers.

Reducing operating costs by € 500 million

Cut corporate centre cost by 50%

Implementing brand improvement & value repositioning.

CONCLUSION:

Share holders filed a class action lawsuit against the owners of supermarket chains regarding a 2003 accounting scandals. The former top manager resigned of the company made the fraud known and its shares dropped by two third over night. The proposed settlement requires approval from a court in the butinore district and from holders of at least 180 million shares. After that they again faced the same problem in 2006. Then resolving all those things currently they have the Revenue of € 25.72 billion (2009), Operating income € 1.198 billion (2009), Profit € 1.074 billion ( 2009), Employees 118,520 ( 2009).Now company being back to forming.

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