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 trans-parency 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.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Study how an accounting fraud was committed at USF and draw lessons from it
• Examine the role played by the top management at Ahold and USF in the accounting fraud
• Appreciate the importance of financial control systems in preventing such frauds
• and Analyze the corrective measures taken by Ahold in the aftermath of the accounting fraud.

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