Royal Ahold NV - The US Foodservice Accounting Fraud

Abstract:

The case examines the accounting fraud at US Foodservice (USF); a subsidiary of the Netherlands based retailer - Royal Ahold NV. It discusses in detail the system followed by USF to account for promotional allowances. The case highlights the role of USF's management in the accounting fraud who intentionally 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 and accounting controls, weak internal control system of the parent company over its subsidiaries, lack of transparency in accounting procedures and linking of management's compensation with the achievement of revenue targets.

The case then describes the measures taken by Ahold to regain shareholders' confidence and strengthen its control systems and governance practices.

Issues:

» Understand the accounting of supplier rebates in the food retailing business

» Study the reasons for lack of proper rules and standards to account supplier rebates due to which it is susceptible to misappropriation and fraud

» Examine and analyze the accounting scandal at USF and the circumstances that led to the continuation of fraudulent accounting practices

» Study the reasons for overlooking the observations of financial due diligence team by Ahold during the acquisition of USF

» Examine the methods adopted by USF employees to account for promotional allowances and the role played by the suppliers who provided false confirmations

» 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

Contents:

Keywords:

Royal Ahold NV, Accounting Fraud, US Foodservice, Promotional Allowances, Vendor Rebates, Average Percentage Rate, Internal Control System, Financial and Accounting Control, Financial Due Diligence, Acquisition, Balance Sheet Adjustments, Internal Control Weaknesses, Road to Recovery program, Capital Budgeting, Vendor Allowance Programs

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