Parmalat Fraud

Topics: Internal control, Auditing, Audit Pages: 2 (559 words) Published: December 8, 2005
Parmalat, Europe's Enron of fraud, undermined European accounting and reporting standards. The fraud, totaling nearly 18 billion euros, brought down the Italian dairy giant and ruined investors across the globe. Such a enormous fraud, some would assume, would need to be highly complex and fully developed in plan as well as execution. However, as Parmalat executives began to cooperate in the investigation, it was uncovered how rudimentary their fraud was despite the enormity in which it occurred.

Parmalat, under the direction of Fausto Tonna, forged documents as well as created fake transactions that any reasonable auditor should have been able to uncover. The forgeries were not considered sophisticated at all. The forgieries were done merely with scissors and a scanner. Official stamps were also "clearly tampered with".

Grant Thornton, the auditor's in charge of auditing Parmalat's financial statements, were seemingly asleep at the wheel in confirming account amounts as well as their mere existence. The firm did not confirm the forged documents with outside third parties such as banks and other creditors. It also made questionable ethical decisions by auditing Bonlat, a spin-off of Parmalat SpA. Despite being within Italian law, Thornton gave up its status of head auditor, yet increased its audit share over twofold. Also, by relying on Parmalat to mail confirmation letters to various creditors, Thornton could have been directly involved in the fraud. Some believe that Thornton could have tipped the company off as to what confirmations were being mailed and when they were being sent out.

Perhaps the most surprising part of the fraud, which was never questioned by auditors, was the fake sales transactions that were so incredibly large that such a figure would be merely impossible. According to its quarterly results, a transaction to Cuba, resulting in a $620 million sale, would have provided "every Cuban with about 210 liters of milk a year". Such gross...
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