Corporate Fraud: Sunbeam Corporation and Chainsaw Al Essay

1940 Words 8 Pages
Background
In July 1996, Alert J.Dunlap (also known as Chainsaw Al)was hired as CEO and Chairman by Sunbeams' board of directors to help the company from a period of lagging sales and profits and make it an attractive acquisition target.
Dunlap used cost-cutting style method and had a reputation for results that immediately the price of Sunbeam stock price increased by 60 percent.

How things begin?
In 1997, Dunlap fired thousands of employees, shut down factories and warehouses, and streamlined the company by eliminating products and selling businesses unrelated to its core products. He attained his objective and made profit for shareholders. However, the wealth did not last. In April 1998, Sunbeam announced a first-quarter loss,
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• “Bill and hold” sales-If customers would order goods before they needed them, Sunbeam offered to hold the goods in Sunbeam’s warehouse until they requested later. They could return the unsold goods for full credit. The bill-and-hold strategy is not illegal and also follows the generally accepted accounting principles (GAAP) of financial reporting.
• Rebates from suppliers for purchases in later periods were recorded as income in the period the rebate was received or negotiated.
• Servicing purported sales of spare parts inventory to a company as Sunbeam products for a fixed fee per unit. Arthur Andersen, Sunbeam’s auditor, found that Sunbeam had guaranteed a 5% profit margin on resale of the inventory, and a fee for service of an indeterminate value, and indicated that Sunbeam’s revenue recognition was improper.
• Improper deletion from Sunbeam’s computer system of all product return authorization in the first quarter of 1998.
• The first quarter of 1998 from March 29 to March 31 was extended to capture more sales in the quarter.
The SEC further claims that no acquisition had surfaced for Sunbeam, and the financial picture was so grave in early 1998 with the view of creating another restructuring or ‘cookie jar” reserve.
In short, these manipulations overstated Sunbeam’s income by 50%

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