...Something went sour at Parmalat 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. 1. What steps does an auditor ordinarily take when confirming cash balances held on deposits with financial institutions? The auditors usually require a confirmation letter from the financial institution to check if the account balance of bank agrees with the numbers on the company’s books. Auditing standards require direct communication that mailing the confirmation letter to the bank be sent by the audit firm and responded directly to the firm in case of any change by client. The confirmation letter also should be received by mail with post stamp and original documents rather than the facsimile in the case. If auditors believe the company’s internal control is not strong enough, they may: (1) trace the accounts to see whether the transactions are properly...
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...Financial Scandals and the Role of Private Enforcement: The Parmalat Case Law Working Paper N° 40/2005 May 2005 Guido Ferrarini University of Genoa, Centre for Law and Finance and ECGI Paolo Giudici Free University of Bozen and Centre for Law and Finance © Guido Ferrarini and Paolo Giudici 2005. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. This paper can be downloaded without charge from: http://ssrn.com/abstract=730403 www.ecgi.org/wp ECGI Working Paper Series in Law Financial Scandals and the Role of Private Enforcement: The Parmalat Case Working Paper N° 40/2005 May 2005 Guido Ferrarini Paolo Giudici This Working Paper is based upon a draft prepared for the EU Corporate Law Making Conference (Cambridge, October 29-30, 2004) organized by Harvard Law School and the Swiss Federal Institute of Technology (ETH Zurich). The authors are grateful to Gerard Hertig, Mark Roe, Donald Langevoort, and other conference participants for helpful comments. Drafts of this paper were also presented at the Yale Law School Alumni Meeting on October 8-10, 2004; at a meeting of the Associazione Via Isonzo held in Milan on October 10, 2004; and at a seminar at the Institute of Law and Finance (ILF), University of Frankfurt, on January 18, 2005. The authors are grateful to Theodore Baums, Andreas Cahn, Carmine Di Noia, Jon Macey,...
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...Table of Contents Parmalat: what went wrong ........................................................................................................................ 1 Story of Parmalat ..................................................................................................................................... 1 Parmalat bankruptcy brief timeline ......................................................... Error! Bookmark not defined. Responsible parties ......................................................................................... Error! Bookmark not defined. Calisto Tanzi, top managers ...................................................................... Error! Bookmark not defined. Gian Paolo Zini........................................................................................... Error! Bookmark not defined. Grant Thornton SpAMaurizio Bianchi and Lorenzo Penca....................... Error! Bookmark not defined. Banks and other board members. ............................................................ Error! Bookmark not defined. Parmalat board members ......................................................................... Error! Bookmark not defined. What to do to avoid financial crisis in an organization................................ Error! Bookmark not defined. Corporate Governance .............................................................................. Error! Bookmark not defined. The control structure.....................................
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...Parmalat is Europe’s Enron. By: January 23, 2011 Parmalat is a corporate disaster comparable in size and complexity to its major U.S. rivals, and thus quickly call “Europe’s Enron.” In Italy in 1961, Calisto Tanzi took over family preserved-meat business, which he went on to found as Parmalat. After going public in 1990, Parmalat expanded at a breakneck pace during the rest of the decade, acquiring operations in the United States, Germany, France, Brazil, and South Africa. From 1995 through 2003, Parmalat went to the bond market 35 times, accumulating over $5 billion in new liabilities. With over 36,000 employees around the world, Parmalat is one of the world's largest food businesses and is the eighth largest company in Italy. (Soltani, & Soltani, 2008) In mid-November 2003 Parmalat defaulted on a $187 million bond payment. That pressed auditors and banks to inspect company accounts. Grant Thorton SPA served as auditors for Parmalat from 1990 to 1999. The scandal may have stayed undetected if not for Italian law which required that companies must to change audit firms every nine years. In 1999 Deloitte & Touche replaced a Grant Thornton company and was the first company who started scrutinizes the nonexistent accounts. Parmalat continued to retain the Grant Thornton as auditor firm for the Cayman Islands subsidiary called Bonlat and that aroused questions about role of Grant Thornton in the fraud. That subsidiary was supposedly held the $4.9 billion in Bank...
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...1. Parmalat managers were able to cook the books and hide it so long for a number of different reasons. First, the ownership of the firm was very concentrated, the family controlled 51% of Parmalat and the vast majority of decisions were made by the family. Also, only the Tanzi family and close acquaintances knew how the company was really ran. This exclusion from outsiders made it possible for the family to hide questionable practices. Secondly, the firm was able to hide debts by inventing assets that did not exist. These enormous amounts of debt came from unwise investments from the CEO Calisto Tanzi. These investments included buying a failing tourism agency and purchasing a soccer club. 2. International banks and auditors played a very important role in the collapse of Parmalat. International banks like Bank of America, Citicorp, and J.P. Morgan rated Parmalat bonds as sound financial paper. If the banks would have done some investigation, they would have found that the bonds/papers were worthless. Bank of America and Citicorp were more interested in making money instead of doing what was right. Bank of America participated in a number of Parmalat acquisitions; Bank of America held the Cayman account (which did not exist) for the $4.9 billion in cash reserves for the firm. Citigroup apparently built the fraudulent accounting systems that made it possible for Parmalat to hide debts for years. Because the lack of accounting transparency made it possible for...
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...ABCD COSO case study Case study – Parmalat The situation - - - - - - - - Parmalat is a multinational Italian dairy and food corporation The company was founded by Calisto Tanzi, a university dropout who transformed a family business, Calisto Tanzi & Sons - Salamis and Preserves into an organisation hailed as one of Europe's biggest corporate success stories. In 1997 Parmalat jumped into the world financial markets in a big way, financing several international acquisitions with debt. By 2001, many of the new divisions were producing losses , and the company financing shifted largely to the use of derivatives. Parmalat had determined that their company wide objectives was to become the leading global company in production of UHT, however, a risk assessment of financing several international acquisitions with debt and derivatives was not performed. There was also a concern that the managers who were making the accounting decisions, were also posting the journals to the general ledger. Furthermore, they were reviewing and signing off on the reconciliations and reporting In February 2003, CFO Fausto Tonna unexpectedly announced a new €500 million bond issue. This came as a surprise both to the markets and to the CEO, Calisto Tanzi. Tanzi fired Tonna and replaced him as CFO with Alberto Ferraris. Ferraris was surprised to discover that, though now CFO, he still didn't have access to some of the corporate books, which were being handled...
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...Corporate Ownership & Control / Volume 2, Issue 2, Winter 2005 РАЗДЕЛ 3 УГОЛОК ПРАКТИКА SECTION 3 PRACTITIONER'S CORNER INVESTORS TRUST AFTER PARMALAT SCANDAL: THE ROLE OF CORPORATE GOVERNANCE Giovanni D’Orio Giovanni D’Orio, Department of Economics and Statistics, University of Calabria – Rende (CS) Italy. Contact: gio.dorio@unical.it 1.1. Introduction The collapse of the Parmalat food empire reveals a troubling aspect about Italian capitalism - the lack of effective financial control over its family-owned companies. But was Parmalat scandal a pure problem of corporate governance or was it simply a “fraud”? Bearle and Means (1932 pg. 6) famously explained: “The separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge ....”. Is this the case? Were the people who invested in bonds and shares of Parmalat savers, investors or what? Which was the role played in the story by Auditors, CONSOB and Bank of Italy? This paper analyse the current situation of the Italian corporate governance and saving system in a critical view trying to find an explanation to the previous questions. 1.2. Corporate Governance and the legislative decree 19/01/03nr. 6: the alternatives The Italian system of corporate governance does not fit in either of the categories of the well-known distinction between bank-based and stock exchange 102 based systems. Instead, it can be ranked among the ...
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...TABLE OF CONTENTS EXECUTIVE SUMMARY……………………………………………………………………………………………………………………….1 COMPANY PROFILE & BUSINESS STRATEGY………………………………………………………………………………………2 AGTHIA GROUP…………………………………………………………………………………………………………………….2 PARMALAT GROUP……………………………………………………………………………………………………………….3 FINANCIAL ANALYSIS…………………………………………………………………………………………………………………………3 DEGREE OF OPERATING LEVERAGE………………………………………………………………………………………………….12 DEGREE OF FINANCIAL LEVERAGE……………………………………………………………………………………………………12 PROFORMA INCOME STATEMENT…………………………………………………………………………………………………..13 AGTHIA GROUP…………………………………………………………………………………………………………………..13 PARMALAT GROUP……………………………………………………………………………………………………………..14 INVESTOR RECOMMENDATION……………………………………………………………………………………………………….15 CONCLUSION……………………………………………………………………………………………………………………………………16 LIST OF REFERENCES…………………………………………………………………………………………………………………….....17 APPENDICES………………………………………………………………………………………………………………………………………… Executive Summary The assignment involves the four year analysis of two companies i.e. the Parmalat Group and the Agthia Group. The former is an Italian food & beverage company specialising in the production of dairy products. The latter is a UAE based company and is responsible for products such as Capri Sun, Al Ain Mineral Water etc. The report ahead will deal with ratio analysis of the both companies and will also look into the performance of the companies and provide a recommendation to investors with regards to the shareholdings in each company...
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...Running Head: THE BRAZILIAN MILK FRAUD SCANDAL 1 The Brazilian Milk Fraud Scandal Involving the Italian Food Conglomerate Parmalat. A Brief Case Study on a Transnational Corporation In Your Home Country Gabriel Ferreira International Public Relations – PUR6608 class University of Florida THE BRAZILIAN MILK FRAUD SCANDAL 2 The Brazilian Dairy Market background. Over the last decade, the Brazilian dairy market has been one of the most fast growing dairy markets in the world. In the early 90s, the Brazilian agro-industrial milk sector suffered three very important changes: it starting being an open economic market for international competitors; at the time inflation was decreasing; and so milk prices drop significantly. All of these changes would not have been possible without the implementation of the Real Plan in 1994 (the new Brazilian coin plan until today) that strengthened investments in the country, especially in the milk-producing sector. These investments also lead to an increase in population number and to changes in alimentary habits (Nahmias, 2008). By becoming such a lucrative sector, the milk and dairy product sector in Brazil became the target for food adulteration processes. Its high-value role in feeding specific groups inside the population, such as children’s, women and elders, and regarding the expensive undergoing steps to achieve a final product that could be sold in the market, was some of the key aspects that attracted...
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...Parmalat, Italy's giant dairy foods producer, was founded in 1961 by Calisto Tanzi, a 22 year-old college dropout and Italian food industry heir . The company was named for Parma (“the food valley” in Italian) and lat (an abbreviation of la tte, Italian for milk). Parmalat's major innovation allowed it to produce the first shelf-stable milk through an Ultra Heat Treatment (UHT) process developed in Sweden, enabling proc essors to produce milk that c ould be stored for long periods without refrigeration. The product was a hit, benef iting from its associations with and advertising through sports, including Formula One Racing an d Alpine Ski Championships. Parmalat was a European pioneer in brand advertising. Sale s rapidly expanded throughout Europe, Latin America and, in total, in over 30 countries. The firm rapidly grew into a family empire, the largest food company in Italy, the fourth la rgest food company in Europe, with over 36,000 employees in 139 plants and branching into a variety of industries including beverages, television, tourism, cookies and f ootball. In 1997, Parmalat initiat ed an aggressive campaign to acquire other firms, particularly in the Americas . One of its large purchases in 1997 was Beatrice Foods, a large U.S. producer. Many of these acqui sitions were huge money losers. Most of the acquisitions were financed with debt and the firm's debt ratings gradually deteriorated. 4 Nonetheless, Parmalat appeared...
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...Case Study : EP 26.963 FRESH, Parmalat Spa Via Oreste Grassi, 26 43044 - Collechio - Italy Alberto Cappello, project manager Fax : 39 0521 808242 Tel : 39 0521 808435 alberto_cappello@parmalat.net TXT Ingegneria Informatica Gianni Rizzetti, technical manager Rizzetti@txt.it www.txt.it/fresh www.txt.it/english/fresh "In order to remain in a globalized market, it is necessary to have a competitive dimension. The company's development is entrusted to a process of internationalization that is clearly defined by acquisition policies, both in Italy and abroad." 1. The Company Parmalat is a multinational Food manufacturer, among the world leaders in the Milk and Perishable Goods sector. It is the largest italian company in the dairy industry. Founded in 1961, the different product lines are : - Milk (50 % of Italian turnover), - Fresh products : yoghurt, cream, cheese, butter… (21 % of Italian turnover), - "Vegetables" : juice fruits.. (15 % of Italian turnover), - Bakery : bread, pasta.. (10 % of Italian turnover), Parmalat has dramatically grown in the recent years through an extensive process of merge and acquisitions and has experienced a rapid growth in turnover over the last 4 years from 2145 millions Euros in 1995 to about 5000 millions Euros in 1998. It has a world-wide presence through 85 different owned or controlled companies world-wide. In 1997, Parmalat : - Owns 28 plants in Europe, employs about 5000 people and makes...
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...an audit the size of Parmalat. After review the material, it is apparently the auditors did not do all they could to detect the fraud Parmalat and its management conducted. Parmalat eliminated billions of its debt through various techniques, such as fictitious loan participation agreement; mischaracterize its bank loan as intercompany debt, etc. Since the definitely huge amount of the loan which should attracted the auditors’ due professional care in their assurance and attestation exercises, both Deloitte & Touche and Grant Thornton, however, failed to exam the deception. There is important issue I could not miss it, when the auditors wanted to confirm the account of Parmalat with Bank of America in the United States, they sent an email through Parmalat’s internal mail system rather than contact the bank directly. In fact, bank deposits are not complicated items to audit. They are to be matched to a bank statement as part of a company’s reconciliation procedures in order to assure that bank statements received by the client and used in the reconciliation process have not been altered. It is Achilles ‘heel. Even I do not have field experience of assurance, common sense tell me, as an auditor, who need to maintain the independence with your client you should not use their internal mail system, especially, when you are asking such significant evidence. 2. Refer to the fraud triangle in Chapter 5. Categorize the various activities and decisions by Parmalat and its top management...
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...because of the scandal. WHY DOES ACCOUNTING FRAUD OCCUR? Fraud are triggered by three elements; rationalization, perceived pressure, and perceived opportunities. Whether the fraud benefits the perpetrator directly, or indirectly, such as benefiting the perpetrator’s company, the three elements are always present. Rationalization- perpetrators find some sort of rationalization that makes their unethical behavior seem acceptable. Perceived Pressure- perpetrators are faced with some kind of pressure, whether it be financial pressure, or executives pressure. Perceived Opportunities- perpetrators see some sort of opportunity, such as promotion, otherwise they would not do it. INTERESTING FACTS ABOUT AUTONOMY CORPORATION, PARMALAT AND HOMESTORE.COM ACCOUNTING SCANDALS Autonomy Corporation • HP accused the former Autonomy management, which was bought by HP for £6.7bn in...
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...Parmalat kërkon mbrojtje nga falimentimi | | | | | |24 dhjetor 2003, 18:16 UTC | | |24-12-2003 | | Kompania gjigante italiane ushqimore Parmalat kërkoi mbrojtje nga falimentimi, në bazë të rregullave të reja qeveritare që u miratuan dje. Qeveria italiane ka caktuar shefin e ri ekzekutiv të Parmalatit, Enrico Bondi si komisioner të posaçëm sipas porcedurave të falimentimit. Zyrtarët besojnë se deficiti në llogaritë financiare të Parmalatit kap ndoshta shifrën 8.5 miliardë dollarë. Sot autoritetet kontrolluan shtëpinë e themeluesit të Parmalatit Calisto Tanzi. Zyrtarët italianë thonë se zoti Tanzi është jashtë vendit, por ka premtuar se do të kthehet. Zyrtarët e Parmalatit e pranuan javën e kaluar se një bankë amerikane nuk ka të depozituara afro 5 miliardë dollarë në asete, ndryshe nga ç’raportoi kompania në shtator. Prokurorët thonë se po hetojnë 20 persona në lidhje me skandalin financiar, mes së cilëve zoti Tanzi dhe i biri i tij. Borxhet e Parmalat-it shumë më të mëdha Romë, 27 janar 2004 - Revizorët që u dërguan nga gjykatësit për kundërvajtje për të...
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...What Happened and Why? A look into the reasons for the downfall of Enron Corp and Parmalat Inc. Introduction We all know Enron to be one of the biggest and most public financial collapses in world history. Many factors, from top leadership to the lawyers who worked for Enron, to the auditors of US companies, to the outside banks that backed Enron in their investments are all to blame in some part for the failures and detriment of so many workers throughout the world. Similar to Enron is an Italian based company, Parmalat that too, had leadership and ethics issues leading to its downfall. In both of these cases, inquisitive journalism was “the cat that undid the ball of yarn” unraveling the inner workings and failures of all involved. The Players Ken Lay was the “Captain of the ship” for Enron since it’s beginnings. A driven and money hungry individual, he sought to advance his wealth and that of his company above all else. The exact reasons as to why are very much up for interpretation, but one thing is clear: he loved being rich. To this effect, Ken Lay enlisted the help of many other less than ethical members of the corporate world to help build and grow Enron. Andrew Fastow and Jeff Skilling were the “sidekicks” of Ken Lay and architects of many of the ways Enron “cheated” the system to get ahead and hide what was really going on. Mr. Tanzi, CEO and founder of Parmalat, was also a captain of “an unethical ship”. He was found to have enticed investors into...
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