Royal Ahold NV - The US Foodservice Accounting Fraud
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Case Details:
Case Code : FINC044
Case Length : 18 Pages
Period : 2000-06
Pub Date : 2007
Teaching Note : Available
Organization : Royal Ahold NV, US Foodservice
Industry : Retailing
Countries : US/Netherlands
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts Contd...
The Aftermath
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After investigations of over a year by SEC, four of the former executives in the
USF, Kaiser, Lee, Resnick, and William Carter, former vice-president were
indicted. The SEC accused these executives of pocketing huge bonuses for
fraudulently meeting certain revenue targets. As their compensation was tied to
meeting the revenue target of USF, they received huge bonuses as they claimed to
have met revenue targets for 2001 and 2002. Miller, Hoeven and Meurs resigned in
the wake of the scandal.
Apart from inflating the profits of USF, Lee was also accused of insider trading
before the takeover of USF.
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SEC alleged that Lee provided non-public information about
Ahold's plans to acquire USF. Using this information, one of Lee's associates
made profit of more than US$ 300,000 by trading in USF's stock...
The Action Taken
After Hoeven resigned, Anders Moberg (Moberg) from IKEA was appointed as the
CEO in May 2003. In April 2004, Ahold announced that a debt of €920 million
would be paid back and the financial controls in the firm were being
tightened in order to prevent any more accounting frauds. Brian Hotarek, CFO
for US retail operations, was appointed as the Chief Business Controlling
Officer, and his role was to review and analyze actual performance and
future plans of the company. A new division 'Business Control for Retail'
was made responsible for Ahold's capital budgeting and real estate
strategies.
Larry Benjamin, who was the CEO of NutraSweet company in Chicago, was
brought in as new CEO of USF. A new leadership team with six individuals
reporting to the CEO was established. The field operations of USF were
organized into seven units, which included four units divided
geographically, and the chain operations unit, national accounts sales unit
and specialty operations unit...
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Exhibits
Exhibit I: Ahold's Stock Price Chart (June 1996 - June 2006)
Exhibit II: Ahold's Operations in the US
Exhibit III: Ahold - Major Acquisitions under Hoeven
Exhibit IV: About Promotional Allowances
Exhibit V: Other Accounting Frauds at Ahold
Exhibit VI: Revised Income Statements of Ahold |
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