Auditor raised concerns in 2001 about Parmalat's Cayman subsidiary

Wednesday, March 31, 2004

An auditor at Deloitte's offices in Brazil raised concerns about a Cayman Islands-registered Parmalat subsidiary nearly three years before the dairy conglomerate collapsed, according to the Wall Street Journal. 

The Cayman-based subsidiary, Bonlat Financing, has since been found to be at the heart of a spectacular multi-billion dollar fraud to rival the downfall in 2001 of US energy giant Enron. Several of its top executives, including founder Calisto Tanzi, have been imprisoned.

Citing Deloitte e-mails and memos, the Journal said Wanderley Olivetti, an auditor in Brazil, sent an message to Adolfo Mamoli, a partner at Deloitte Italy, in March 2001 with concerns about Bonlat's ability to repay debts of about $225 million, owed to Parmalat in Brazil. 

Parmalat triggered a criminal fraud investigation and forced management to seek bankruptcy last year after it said a $5 billion bank account held by Bonlat did not exist. Deloitte Italy is under investigation as the company's primary auditor from 1999 to 2003. 

Deloitte Brazil audited two Parmalat subsidiaries in Brazil but it did not audit Bonlat. Deloitte claims that as auditor to the holding group of companies, it only had to audit 51 percent of Parmalat's assets under Italian law. Bonlat fell in the remaining 49 percent handled by separate auditors. 

The story said it was not clear what if any response Olivetti received to his 2001 questions but it said the auditor repeated his concerns about transactions with Bonlat in 2002. 

One Deloitte Italy partner warned that questions raised in 2002 by the Brazilian auditor might prompt Parmalat to sever its "multi-million dollar world-wide engagement" with Deloitte, the story said, citing a memo to a US official at the firm. 

Deloitte spokeswoman Oriana Pound in London said she would not comment on rumours based on "inappropriate leaks" from the prosecutor's record.

In January a Deloitte spokesperson told Accountancy Age: 'The standards in Italy are different and our feeling is that we acted properly throughout and in accordance with the relevant standards.' 

Meanwhile, in Italy, government-appointed administrator Enrico Bondi has proposed that all of the debt of the bankrupt food group be converted into new shares, the company said in a presentation released last week on its website.

In a 46-page document outlining the company's situation and plans, Parmalat said creditors would receive shares from an increase in its share capital which they could then sell or keep once trading in the firm's shares began again on the stock market.

Parmalat's total debt was put at $17.35 billion.

The document was in line with a recovery plan drawn up by Bondi and made public on 16 March, calling for the group to refocus on profitable dairy and fruit juices.

The group is to slim its portfolio of brands to 30, of which six generate 80 percent of its sales, from 120 currently.

The document said the final version of the restructuring plan could be presented at the end of September and put into place at the beginning of 2005.

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