Case Study Of Parmalat Scandal

The Italian dairy food corporation Parmalat SpA was founded by Calisto Tanzi in 1961 and grew to a global company. It had about 140 production centers, 36,000 employees and 5,000 contracted dairy farms (https://en.wikipedia.org/wiki/Parmalat). The dairy food giant defaulted on debt in November 2002 and filed bankruptcy in December 2003. It sounds ridiculous because Parmalat’s subsidiary in Cayman Islands had a $4.9 billion cash balance in Bank of America account. However, this account was falsified. Meanwhile, Parmalat also hid losses of $10 billion and increasing assets as high as $19 billion. The auditors did not show enough professional skeptism and due care during the audit.

The situation began to unfold when the Securities and Exchange Commission was probing into a restatement of the company's stock price. Kozlowski's business practices raised some eyebrows. In 1999, the Securities and Exchange Commission (SEC) initiated an inquiry into Tyco's practices that resulted in a restatement of the company's earnings. In January, 2002, questionable accounting practices came to light. Tyco had forgiven a $19 million, no-interest loan to Kozlowski in 1998 and had paid the CEO's income taxes on the loan. It was found that he company's stock price had been overrated, and that the CEO and CFO had sold 100 million dollars' worth of shares, and then stated to the public that he was holding them, which was a misrepresentation and misled the investors.

The one pattern within the data that appears to be inconsistent yet if the auditors had established an internal control systems would be Monus the founder moving so freely throughout every aspect of the company with no one checking his movements. From choosing what properties to purchase to purchasing supplies. In any company there should be segregation of duties. For example, the person making the deposits should not be the person writing the checks. Had there been stipulations made it would not have been so convenient to commit the

Since their prices were way too low, eventually profit margins began to decline very fast, this resulted in millions of losses. Instead of disclosing and recording these losses, President Monus along with the CFO Pat Finn and two other high ranking officials, decided to cross out the correct numbers insert highly inflated numbers, during this a sub ledger with the real numbers was also being kept. After a few months of this practice Pat Finn the CFO took on the responsibility of altering the numbers. By mid 1990 Monus's refusal to raise prices led to even more cover ups and eventually more members of the organization began to get involved in the fake reporting including the manager of accounting and the Controller. By the time the fraud was discovered executives at Phar-Mor had misstated financial statements by over $500 million.

The Parmalat situation started out as a fairly standard – although sizeable –accounting fraud. Not even the best auditors could prepare for what was to come from this company. The Parmalat group, a world leader in the dairy food business, collapsed and entered bankruptcy protection in December 2003 after acknowledging massive holes in its financial statements. This happened when billions of euros seem to have gone missing from the company’s accounts. This dramatic collapse has led to the questioning of the soundness of accounting and financial reporting standards as well as of the Italian corporate governance system. Parmalat, which is headquartered in the central Italian city of Parma, was, like most Italian

As stated in the article Fraud at Buca di Beppo: A Villa in Tuscany? In October 2001, Buca’s assistant controller resigned, and in his letter that sent to the CFO and Human Resources, he indicated he was resigning because of concerns over the propriety of expense reports, improper related-party transactions, and the manipulation of earnings. However, there no action was taken at the time to make any changes to his complain. During the December 2002, the cash manager filed the compliant against the Buca company through the Department if Labor to protect him under the new law, which is whistleblower provision of Sox. The cash manager claimed that he had been fired for reporting accounting irregularities to senior Buca managers. Because of the cash manager has filed the whistleblower claim on December 2002, in 2004 the SEC alerted Buca that they were under the investigation of financial fraud. Therefore, the Buca’s CEO, Joseph P. Micatrotto, and his three other former employees had been charged against the creation fraud to the company’s financial statements that they used as the benefit for their personal

In the early 2000s, accounting fraud was significantly shook investors’ confidence, the public scandals such as Enron and WorldCom hurts investor. Due to the great loss from accounting fraud and corporate failures, The Sarbanes Oxley Act was signed in 2002 to rebuild the confidence of public confidence. (Jahmani, Dowling 57)

Phar-Mor was known as one of the major discount chain retailers in the late 1980’s - early 1990’s. It was founded by Mickey Monus, a gambler in nature, who with the help of senior management was “cooking the books” for years to cover up his loses. The reason why senior management agreed to do this fraud is the belief in unique ability of their leader to fix everything later on. This case is known as one of the biggest accounting frauds in the corporate history of the U.S. This paper will analyze who was affected by this fraud, the motives behind it and what systems of control failed to prevent it.

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

Based on the fact that the CFO and company has lied before about a very serious matter, as auditors, we would have to exercise a high level of professional skepticism going forward due to the increase in both inherent and control risk. We have to be sensitive to all information regarding the company, especially when the information is tied to the company’s management. Our responsibility for this situation all depends on the extent of the impact of the CFO’s illegal act

Those who were responsible for the scandal have paid for their unethical behavior. Kozlowski and Swartz were accused of giving themselves more than $150 million in illegal bonuses and forgiving loans to themselves, besides fraudulently selling an additional $430 million in the company’s stock options. Kozlowski and Swartz were convicted on 22 counts of grand larceny, falsifying business records, securities fraud and conspiracy, sentenced from eight and one-third years to twenty-five years in prison, and ordered by State Supreme Court Justice Michael Obus to pay a total of $134 million in restitution, in addition of $70 million and $35 million fines respectively (Associated Press, "Ex-Tyco Executives…"). Belnick, the former general counsel, shelled out $100,000 to settle charges with the U.S. Securities and Exchange Commission over $14 million in undisclosed loans. Federal regulators imposed heavy sanctions against Richard Scalzo, a partner at PricewaterhouseCoopers, over his auditing work at troubled Tyco International Ltd., by permanently barring him from conducting public company audits (Countryman, "SEC Bans...").

Kozlowski was involved in with Chief Financial Officer (CFO) Mark Swartz. Kozlowski, Swartz, and Belnick stole $600 million dollars from Tyco International through their unapproved bonuses, loans, and extravagant "company" spending (Obringer, 2005). Three of them worked together to misuse company funds, shareholders’ interests in the company.

may be listed on the Stock Exchange although the absolute majority are not. It is

Parmalat SpA is a multinational Italian dairy and food corporation that specializes in UHT (Ultra High Temperature) production of long life milk. It was founded by Calisto Tanzi in 1961 and the headquarter is based in Collecchio, Italy. In 2003 the company collapsed with a €14 billion hole in its accounts and it is still considered the Europe’s biggest bankruptcy.

In 2003, the threads holding Parmalat’s fraud together quickly began to unravel. To back up the existence of the Cayman Islands account’s funds, Parmalat had been using a letter allegedly written to them from the Bank of America to confirm that a transfer of the funds had been made. However, after brief scrutiny it was revealed that the letter had been forged, and so the funds did not exist. As the scandal was put under further scrutiny, it was revealed that Parmalat had not only been lying about the money in the subsidiary, but about various other assets as well. The accountants working for Parmalat had essentially invented assets out of thin air to offset their expenses and liabilities, and were lying about revenues as well. After thorough investigation it was determined that Parmalat was $17.6 billion* in debt. Trade of their stocks was immediately suspended.