PowerPoint Presentation

Cadbury (Nig.) Plc 2005Presented by Group 3OverviewIntroduction, overview, executive summaryWhy did the fraud occur?What were its key features?What could have been done to prevent it? What sources have been used in the research?

IntroductionEstablished in the early 1960s as a packaging operation for exporting cocoa beans and importing processed goods. Became a manufacturing firm in January 1965 and a publicly listed company on the Nigerian Stock Exchange.

EMERGING MARKETS

Executive SummaryPressures to meet and exceed internally predetermined goal targetsOverstatement of financial position from 2002-2005Sanctions and fines imposed on firm and executivesWhy did the fraud occur?Bunmi Oni

Ayo Akadiri

PERSONALITY TRAIT...As reported in the press, if profit was the most crucial factor in the survey, Oni would not have ranked that high, nor would his company. But, he is acknowledged by peers as a CEO who would rather make less profit than cut corners. In a country that has been almost completely quartered by corner cutters, Oni would rather see his company go through tedious and complex litigation with local and state governments than pay a simple bribe... ...We salute the integrity, excellence, industry, innovativeness, vision, and exemplary leadership of Oni, not only in Cadbury, but also in the larger society where his contributions have provided the needed light in the tunnel...OTHER ACCOMPLICEOlusegun Aina-Senior financial Accountant/Head of Accounts Akinbode Gbolahan-Sales Operations and development controller Tunde Egbeyemi- Head of internal audit

ORGANIZATIONALn STRETCH GOALSAn organizational goal with an objective probability of attainment that may be desirable but is seemingly impossible given current capabilities.DISADVANTAGESStretch goals can sometimes lead to unethical behavior. People might feel under pressure to do whatever it takes to achieve the goal, even when their actions go against the organization's values or mission. Team members might also feel pressured to take excessive risks to meet the goal. In jobs where mistakes can cause significant damage, this can jeopardize the well-being of people and organizations.CADBURY NIGERIA VISION 2000Our vision to transform the West African operations of Cadbury into a $1b enterprise in about a decade approved by the Board was to be powered by the Nigeria/Ghana hub, two major acquisitions in the region, the opening of new territories and strategies to reach for the fortune at the bottom of the economic pyramid. That goal, though stretching, was deemed achievable, and was later validated by the performance in the telecommunications industry where a single company achieved over $1b in revenue in 2003 its second year of operation 98% of which came from prepaid air time, not from big business packages. The success of many Bank IPOs was further proof of what we had known that the informal economy was awash with cashEfficiency improvement agenda. 202a. completely re-building and modernising an archaic manual and inefficient manufacturing plant that had seen no major investment for nearly 20 years, b. rationalising the brand portfolio and constructing a new brand architecture, c. designing and implementing a new route to market configuration and a new structure, d. creating a new modern work environment, learning centre and a fitness centre, e. upgrading the quality of management and staff to raise talent, as well as f. building a commensurate IT-enabled business process platform across the commercial, supply chain and functional units.

CADBURY TODAYMondelez International has a majority equity-interest of 74.97% in Cadbury Nigeria through its holding in Cadbury Schweppes Overseas Limited.25.01% is held by indigenous shareholders and publicly traded on the Nigerian Stock Exchange.

Key Features of FraudUndisclosed Offshore Remuneration AccountsFalse Transactions CertificatesStock BuybacksAudit failureCost DeferallsUndisclosed Offshore Remuneration Accounts

An undisclosed and undocumented offshore account was operated and maintained by the company from which Ayo Akadiri , Bunmi Oni and other executive directors were paid offshore remunerations without the approval of the Committee responsible for fixing remunerations of Executive Directors and not recorded in the companys financial report and account.False Transactions Certificates

Stock BuybacksA stock buyback has an obvious effect on a companys income statement, since it reduces its outstanding shares. But it also impacts other financial statements.On the balance sheet, a share repurchase will reduce the companys cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount. As a result, performance metrics such as return on assets (ROA) and return on equity (ROE) typically improve subsequent to a share buyback.Stock Buybacks

Audit failure

Due DiligenceFailure to make proper recommendations thereon to the Annual General MeetingFailure to examine the auditors report to review and make proper findings on management matters in conjunction with the External AuditorsNeglect to keep under review the effectiveness of the companys internal control system and accountingCOST DEFERALSThe genesis of the saga was the failed 4.8m continuous plant, designed by Cadbury Schweppes UK engineers, which was to replace a particular 50-year old manual operation. As the design errors surfaced one after the other during commissioning, the UK engineers resorted to denials, and even intrigue everything to avoid taking responsibility. The only official who dared to acknowledge the design errors arose from Cadbury Schweppes would only paraphrase for reasons of censorship. This left Cadbury Nigeria carrying the can having already committed shareholders money to procure the kit. We incurred huge additional costs in re-design, replacement plants, wastage of materials, carrying the 300 people that should have been surplus if the new plant had delivered its promise, and also trying to maintain the old kits that were falling apart and for which spares were no longer available. We managed the challenge by isolating the cost impact of the new plant failure and deferring the costs momentarily in the expectation of full recovery when the plant came on stream as assured by the engineers from both Cadbury Schweppes and Cadbury Nigeria. The deferral was to shield the company and its shareholders from the effect of this imposed challenge. As it turned out the verdict of the engineers after 18 months of hard work was that the plant could never attain its rated capacity economically. At this point it became clear that the cost recovery would not happen in the time frame we anticipated, and was then reported.WHAT COULD HAVE PREVENTED THE FRAUD

Effectiveness and independence of audit committeeNon compliance with CAMA regulation: Regulation that not more than one executive director should be on the committee.The audit committees of Cadbury in persons of Messrs Thomas A. A., Z. C. Enunwa and S. J. Balogun failed to discharge their statutory duties.Due diligence by external auditors and change of external auditor after a specified period of timeAkintola Williams Deliotte (AWD) did not receive confirmation for N7.7 billion credit to Cadbury and it failed to note it in the audited accounts. It also failed to note other lapses in the account.AWD failed to probe further stock certificate of N700million allegedly issued by JOF Limited, even though it has noticed lapse in Cadbury internal control in the management letter.AWD failed to note lapse of internal control in its report.WHAT COULD HAVE PREVENTED THE FRAUD AWD audited Cadbury for 40yearsCompliance and enforcement of regulationsUnion registrars prints dividend warranty for Cadbury shareholders.It neither paid or dispatched dividend warranty to shareholdersIt failed to report breach of dividend payment to SEC.Cadbury failed to follow the directives of SEC in respect of dividend payment by its registrars.Union registrar failed to discharge its statutory dutiesCompliance with corporate governance code and transparent disclosureOffshore payment to Executives Directors Operations of account that are not included in the booksCoding of account head that has alternative meaning

ACTIONS TAKEN AFTER THE FRAUDThe CEO and Finance directors were sacked and banned from operating in Nigeria capital market.The Chairman, NED and non directors members of audit committee were disqualified for 1year from operating in capital market and being employed in financial service industry, holding position of directors.Cadbury share was suspended and Cadbury was required to pay a fine of N100,000 and N8,245,000.AWD was required to pay a fine of N20,000,000.Union registrar was required to pay a fine of N7,615,000

Referenceswww.nigeriaworld.comwww.ukessays.comOkaro S.C. and Gloria O.O. (2011). Creative accounting, corporate governance watch dogs institutions and systems- the case of Cadbury (Nig.) Plc