Troubled Dutch retailer Royal Ahold has said that an investigation into US Foodservice has revealed that Ahold’s US food distribution unit overstated earnings by US$880m between 1 April 2000 and 28 December 2002.
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Interim finance director Dudley Eustace said the fraud was limited to two senior US executives who have already been fired. He also said the overstatement would lead to a reduction of Ahold’s group equity of $880m.
“The new chief executive is just on board, I will be working with him to determine what the future shape of the company will be,” Eustace told Reuters in an interview.
He added that the probe into US Foodservice had shown that only two senior vice-presidents were responsible for the overstatement of earnings.
“It boggles the mind, when there is collusion between two departments, that is what happens. This was collusion between two guys, quite senior fellows. The investigation turned up that only these two guys were involved,” he said.
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By GlobalDataUS Foodservice’s chief marketing officer Mark P Kaiser and purchasing head Timothy Lee have both been fired and are under investigation for allegedly collaborating with employees at suppliers such as Sara Lee to inflate sales in order to obtain vendor discounts that were booked as income at US Foodservice, reported Reuters.
Ahold said that of the $880m in overstated earnings, around $110m relates to fiscal year 2000, around $260m relates to fiscal year 2001 and around $510m relates to fiscal year 2002.
Although the forensic accounting work at US Foodservice is substantially complete, an internal legal investigation at US Foodservice is ongoing.
The retailer said its supervisory board will be meeting shortly to determine what actions should be taken with respect to US Foodservice.
In addition to the investigation at US Foodservice, Ahold had commenced internal investigations at various Ahold operating companies. Although these investigations are ongoing, the forensic accounting work at Albert Heijn, Stop & Shop, Santa Isabel in Chile, Ahold’s operations in Poland and the Czech Republic, and the ICA Ahold Scandinavian joint venture is substantially complete and Ahold said no evidence of financial fraud has been found at any of those operations.
Ahold also announced that Deloitte & Touche has resumed its audit work at ICA Ahold and Santa Isabel. Ahold had previously announced the resumption of audit work at Stop & Shop and Albert Heijn.
Ahold management is confident that the company will be able to achieve completion of the remaining audits by 30 June.
