The US Department of Justice and the US Securities and Exchange Commission are turning their attention to possible collaboration between the accused four and staff at some of the company's major suppliers, with the intention of inflating the amount suppliers appeared to owe in the form of promotional rebates.
Such rebates are allowances commonly paid by food makers to retailers and distributors in return for meeting agreed sales targets. They have the effect of reducing the cost of goods sold, hence boosting profits.
Regulators claim that the four US Foodservice executives cajoled employees of the company's suppliers to exaggerate the amount of money they owed to US Foodservice in the form of these rebates. An article in the Financial Times today said that one of the executives implicated signed a confirmation to accountant firm Deloitte that a vendor owed nearly $3.2m, when a letter to the vendor showed it owed only $68,000.
Prosecutors declined to say whether charges would be brought against any US Foodservice suppliers, though some of those being investigated could well be large corporations. At least six food giants - Heinz, Kraft Foods, ConAgra Foods, Sara Lee, General Mills and Tyson Foods - confirmed last year that investigators had sought information from them related to the US Foodservice investigation.
ConAgra said some of its salespeople had unknowingly confirmed requests from US Foodservice for rebate confirmations that turned out to be inaccurate. But the employees alerted accounting staff who picked up the errors.
Sara Lee later said it had relieved three salespeople of normal responsibilities after they had confirmed to auditors incorrect amounts owed to US Foodservice. All the food companies have said that their own accounting is not in doubt.
Ahold gave confirmation yesterday that the US Department of Justice and the US Securities and Exchange Commission have indeed brought charges against the four former executives of its US subsidiary, US Foodservice. The charges relate to prior-year accounting irregularities at US Foodservice that were announced in February 2003.
The US government alleges that the four former US Foodservice executives engaged in securities laws violations. One of the former executives has also been charged with insider trading in securities of US Foodservice before its acquisition by Ahold and making false statements to a government official.
"Executives at US Foodservice went to extraordinary lengths to perpetuate the illusion of stellar financial performance. Their fraud created the appearance that they had met their budgets and allowed them to line their own pockets with unearned bonuses," said Linda Chatman Thomsen, deputy director of the SEC's Division of Enforcement.
Ahold says that it is cooperating fully with the investigation, and that significant operational changes have already been made.
"US Foodservice has taken numerous actions over the course of the past year and a half to ensure this conduct does not occur again," said Ahold corporate executive board member Peter Wakkie.
"Ahold has also put in place a series of measures that will give the company the ability to more closely monitor the financial activities of its operating companies."