PRE WORK 3 U.S.

FOODSERVICE CASE STUDY (Friday, July 7th 2017)

Dinda Dira Septama - FODP 2 Kalbe Farma, Tbk.

Questions for Class Discussion:

1. What lessons can be learned from the U.S. Foodservice case with regard to over reliance on
third party confirmations?

Answer:

Confirmation is the process of obtaining and evaluating a direct communication from a third
party in response to a request for information about a particular item affecting financial
statement assertions. The process includes selecting items for which confirmations are to be
requested, designing the confirmation request, communicating the confirmation request to the
appropriate third party, obtaining the response from the third party, and evaluating the
information, or lack thereof, provided by the third party including the reliability of that
information.
Evaluating the information is critical and need to be done by auditors for every third party
confirmations made. An auditor must obtain adequate assurance to address audit risk and
assure the information are reliable and valid through the evidence.

2. What mistakes were likely made by auditors of U.S. Foodservice?

Answer:

The third party confirmations of rebates receivable provided by the vendors salespeople, not
U.S. Foodservice accounting departments. It has been proved that Deloittes audit testing
using third party confirmations failed to detect the problems (managements
misrepresentation of the reduction in cost of sales resulting from these manufacturer rebates

3. Define professional skepticism. Do you think that the auditors of U.S. Foodservice exercised
enough professional skepticism? Why or why not?

Answer:

Professional skepticism is an attitude that includes a questioning mind, being alert to

conditions which may indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence. In this case, the auditors of U.S. Foodservice are lack of
professional skepticism that they didnt prove the statements from vendor whether the
information are reliable and valid.

4. Who acted unethically in this case? What were the consequences?

Answer:

Companys Chief Operating Officer, because he has initiative that would increase the
 likelihood of managers receiving bonuses and help the company achieve its sales target for
the year.
U.S Foodservice employees influenced their vendors to complete and return to the auditor
false confirmation letters with dollar amounts intentionally overstated by as much as millions
of dollars.
Consequences: resulted in earnings restatements, plunging stock price, several high-level
managers losing their jobs, regulatory investigation of the companys accounting practices
and allegations that officials in both the U.S. And Dutch offices had criminal intent to
deceive and defraud the investing public.

5. It appears that many people within U.S. Foodservice knew of the fraud and either helped
perpetuate the fraud or at a minimum did not notify the auditors or regulatory agencies. What
options were available to the employees who knew about the fraud and wanted to do
something about it?

Answer:
The company can make whistleblowing system that linked directly to all employee. In this
policy Whistleblowing means the reporting by employees of suspected misconduct, illegal
acts or failure to act within the Council.

The aim of this Policy is to encourage employees and others who have serious concerns about
any aspect of the Councils work to come forward and voice those concerns.

6. What recommendations would you suggest to US Foodservice for further improving the
accounting and auditing guidance in the area of vendor rebates?

Answer:

- Review company policies and procedures towards vendor rebates. Determine and develop
the procedure as a reference and frame work on employee working process.
- Improved internal control and internal audit procedure. Make audit assessment process for
each department and evaluate result.
- Ensure mutual understanding with suppliers - negotiation of rebate terms with suppliers
reduces any risk of disagreement between purchasers and suppliers.
 PRE WORK 3 U.S. FOODSERVICE CASE STUDY (Friday, July 7th 2017)
Dinda Dira Septama - FODP 2 Kalbe Farma, Tbk.

1. Please compare and contrast between Fraud Auditing and Forensic Accounting

Answer:

Fraud auditors are generally accountants or auditors whoby virtue of their attitudes,
attributes, skills, knowledge, and experienceare experts at detecting and documenting
frauds in books of records of accounting and financial transactions and events.

The skills fraud auditors require include all of those that are required of financial auditors,
plus the knowledge of how to gather evidence of and document fraud losses for criminal,
civil, contractual, and insurance purposes; how to interview third-party witnesses; and
how to testify as an expert witness.

Forensic accountants may appear on the crime scene a little later than fraud auditors, but
their major contribution is in translating complex financial transactions and numerical
data into terms that ordinary laypersons can understand. That is necessary because if the
fraud comes to trial, the jury will be made up of ordinary laypersons.

Areas of expertise of forensic accountants are not only in accounting and auditing but in
criminal investigation, interviewing, report writing, and testifying as expert witnesses.
They must be excellent communicators and professional in demeanor.

The involvement of the forensic accountant is almost always reactive; this distinguishes
forensic accountants from fraud auditors, who tend to be actively involved in prevention
and detection in a corporate or regulatory environment.

2. Give one example of fraud in business or working environment

Answer :

PT Kimia Farma merupakan salah satu dari produsen obat-obatan milik pemerintah yang
ada di Indonesia. Pada audit tanggal 31 Desember 2001, manajemen Kimia Farma
melaporkan adanya laba bersih yaitu sebesar Rp 132 milyar, dan laporan tersebut di audit
oleh Hans Tuanakotta & Mustofa (HTM).
Namun, Kementrian BUMN dan BAPEPAM menilai bahwa laba bersih tersebut terlalu
besar dan mengandung unsur rekayasa. Setelah dilakukan audit ulang, pada 3 Oktober
2002, laporan keuangan Kimia Farma 2001 disajikan kembali dan hasilnya telah
ditemukan kesalahan yang cukup mendasar.
Pada laporan keuangan yang baru, keuntungan yang disajikan hanya sebesar Rp 99.56
milyar, atau lebih rendah sebesar Rp 32.6 milyar atau 24.7% dari laba awal yang telah
dilaporkan. Kesalahan itu timbul pada unit Industri Bahan Baku yaitu kesalahan berupa
 overstated penjualan sebesar Rp 2.7 milyar, pada unit Logistik Sentral berupa overstated
persediaan barang sebesar Rp 23.9 milyar, pada unit Pedagang Besar Farmasi berupa
overstated persediaan sebesar Rp 8.1 milyar dan overstated penjualan sebesar Rp 10.7
milyar. Diduga upaya penggelembungan dana yang dilakukan untuk menarik para
investor untuk menanamkan modalnya kepada PT Kimia Farma,
Kesalahan penyajian yang berkaitan dengan persediaan timbul karena nilai yang ada
dalam daftar harga persediaan digelembungkan. PT Kimia Farma, melalui direktur
produksinya, menerbitkan dua buah daftar harga persediaan pada tanggal 1 dan 3 Februari
2002. Daftar harga per 3 Februari ini telah digelembungkan nilainya dan dijadikan dasar
penilaian persediaan pada unit distribusi Kimia Farma per 31 Desember 2001.

Sedangkan kesalahan penyajian berkaitan dengan penjualan adalah dengan dilakukannya

pencatatan ganda atas penjualan. Pencatatan ganda tsb dilakukan pada unit-unit yang tidak
disampling oleh auditor, sehingga tidak berhasil dideteksi. Berdasarkan penyelidikan Bapepam,
disebutkan bahwa KAP yang mengaudit laporan keuangan PT Kimia Farma telah mengikuti
standar audit yang berlaku, namun gagal mendeteksi kecurangan tersebut. Selain itu, KAP
tersebut juga tidak terbukti membantu menajemen melakukan kecurangan tersebut. Sebagai
akibat dari kejadiannya ini, maka PT Kimia Farma dikenakan denda sebesar Rp 500 juta, direksi
lama PT Kimia Farma terkena denda Rp 1 Milyar, serta partner HTM yang mengaudit Kimia
Farma didenda sebesar Rp 100 juta. Kesalahan yang dilakukan oleh partner HTM tersebut adalah
bahwa ia tidak berhasil mengatasi risiko audit dalam mendeteksi adanya penggelembungan lama
yang dilakukan PT Kimia Farma, walaupun ia telah menjalankan audit sesuai SPAP.