Evaluating an Ethical Dilemma: Analyzing Management Incentives
In July 2004, the U.S. government filed civil and criminal charges against four former executives of Netherlands-based Ahold’s subsidiary U.S. Foodservice, Inc., an operator of supermarkets such as Bi-Lo and Giant Food Stores. Two of the four executives have pleaded guilty, and the other two were indicted. The alleged widespread fraud included recording completely fictitious revenues for false promotions and persuading vendors to confirm to auditors the false promotional payments. U.S. Attorney David Kelley suggested the fraud was motivated by the greed of the executives to reap fat bonuses if the company met certain financial goals. The auditors did not uncover the fraud.
Required:
1. Describe the parties who were harmed or helped by this fraud.
2. Explain how greed may have contributed to the fraud.
3. Why do you think the independent auditors failed to catch the fraud?