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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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

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.

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

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...

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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