This report explained about the failures in corporate governance and fraud that happen in Parmalat company.

1. PARMALAT – FAILURES IN CORPORATE
GOVERNANCE AND FRAUD
ATEERA BT AHMAD DAHALAN (KBB16011)
LOSHYINI DEVI POTHORAJOO (KBB17018)
NOR SAKINAH KAMARUZZAHID (KBB16013)
NURUL FARHANAH MOHD IDRES (KBB16021)

2. INTRODUCTION
 Founded in 1961 as a family run in Northern Italy
 Grew into one of the largest dairy and food companies in Italy
 Parmalat listed 214 subsidiaries in 48 different countries
 During 1990, Parmalat’s fraud was apparently beginning and lasted until 2003
 Parmalat executives used a wide range of unethical techniques to extend the fraud
I. inflated revenues
II. used receivables from these fake sales as collateral to borrow more money from banks
III. created fake assets thereby inflating reported assets
IV. on legitimate debt that they hid from investors

3. ORGANIZATIONAL CHART

4. FINANCIAL FLOWS
 In 1987 – finances of Parmalat was in a very poor shape
 Calisto Tanzi sold Parmalat to a dormant holding company
 Raised €150 million from outside investors – enable Parmalat to go public in 1990
It had a market value of €300 million – key moment
 from 1990 to 2003, Parmalat inflated its revenues through double billing and various methods
of “creative accounting” – enable Parmalat to borrow money
 In 2003, it owed its investors €14 billion

5. THE FAILING OF PARMALAT
 During late 1999, Deloitte & Touche filed an internal ‘early warning’ report
about Parmalat’s Latin American operations, where it was losing over €300
million yearly
 In March 2003, Deloitte’s Maltese office doubts about a now confirmed,
fictitious $7 billion inter-company transfer were swiftly silenced internally
 In June 2003, Kenneth Lewis, CEO of Bank of America (BoA), paid a marketing
call on Tanzi.

6.  Working with Parmalat was big business in 1997 BoA received $30 million in
commission on a $1.7 Billion bond financing deal
 Citigroup collected $7 million in fees, plus 6% interest, from a $137 million
financing scheme.
 The final straw that exposed Parmalat’s fraud was a €150 million bond
repayment
 Calisto Tanzi has admitted transferring some €500 million to family firms

7. DISCUSSION ON THE FAILURE
 Separation of Ownership and Control
 Roles of Board of Director
 Lack of Monitor by the Auditor
 Roles of External Auditing Firm

8. Separation of Ownership and Control
 Main reasons for the corporate governance structures in place failed in pre-emptively spotting
and controlling the collapse of Parmala
 Monitoring and reporting these ‘related-parties’ transactions should have, in fact, been part of
the responsibilities of the audit committee outlined in both the Preda report, CCCG.

10. Roles of Board of Director
 The non-executive directors in Parmalat was not independent as he had been working in
Parmalat as a senior manager
 The chairman and chief executive position were not separated
 Directors that is not independent controlling shareholders
 The failure of Parmalat to establish careful checking and monitoring structures within the
company’s governance framework laid it bare to the abuse of power and fraudulent activity

11. Lack of Monitor by the Auditor
 Parmalat Finanziaria’s board of statutory auditors was composed of three members – not
unsual
 The Parmalat Finanziaria board of statutory auditors never reported anything wrong in their
reports
 The board of statutory auditors seems to provide a legitimating device, rather than a
substantivee monitoring mechanism.

12. Roles of External Auditing Firm
 Never claimed any problems regarding the financial position of Parmalat in any of their reports
 Issued a review report – interim financial information ; unable to verify the carrying value of
Parmalat’s investment in the Epicurum Fund, as the fund had available no published accounts
nor any marked to market valuation of its assets

13. RECOMMENDATIONS
 Have a good structure of audit committee - to raise a flag at an earlier stage
 The Shareholder’s Meeting - approve the final budget, appoint and revoke directors, appoint
internal auditors and the president of the Board of Auditors, decide the compensation for
directors and internal auditors, if it is not established in the charter, and make a decision on the
liability of directors and internal auditors
 Stricter the Existing Rules - reduced the penalties for false accounting by listed companies,
and for unlisted companies downgraded the offence to a wrongdoing from a criminal offence

14. CONCLUSIONS
 Awareness - an increased concern when addressing top management
 Other problems - the relative little frequency of meetings, the problematic nature of the
quantity and belated provision of information
 Obstacle - the intrinsic predicament of the provision of information by the same people that
are being audited
 The business world is distorting the true essence of audit committees