E) Discuss the fraud at Sunbeam Dacus the Coke ar Resermes\" or \"Slush-Fund and
ID: 2339859 • Letter: E
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E) Discuss the fraud at Sunbeam Dacus the Coke ar Resermes" or "Slush-Fund and how t involving the CEO Al Chainsaw" Dunlop. What accounting mechanisms were abused? work What actions can be taken by an Auditos to ensure that such Reserves" and "Funds" are not established and abused by Management? [Hint Retroactive Restatement vs. Current and Prospective Adjustments] the Fraud at Waste Management. How did management pull-off the Fraud? When did the Auditors (Arthur what happened? Discuss the long-term agreement between Andersen and Waste Management. sen) discovered What does this agreement constitute? How and when did the SEC find out about the scandal and the arrangement? What did the SEC do in light of this unprecedented "agreement" between Andersen and Waste A impact of the destruction of documents in the Waste Management case and the "Harbinger" of things to come at Enron. Do you believe in some way that the SEC assisted in the same behavior occurring at Enron by not severely punishingExplanation / Answer
The Sunbeam initially formed as the Chicago Flexible Shaft Company based in Illinois. Later on it changed its name and has surpassed many phases of peaks and troughs. Here are the relevant points to the case:
Facts of the Case: The Company was into electronic appliances, kitchen and cooking appliances, professional products etc. and has made a huge amount of profits until it changed its name to Sunbeam. The growth rate of the company was very high soon after it changed its name and under the new brand it has undergone many mergers and acquisitions, takeovers, restructuring in order to stay competitive and profitable. However, post 1982, the US economy was under very high inflation and resultantly a very high interest rates. In the meantime, sunbeam has also acquired one of its major rival appliance making corporation and continue to hold a considerable market share.
This healthy position did not continue for long. In spite of the fact that the company had a wide range of product lines, more than 10000 employee base, factory outlets and divisions all spread across the country, its revenue struck and have continued to fall down steeply during the late 90’s.
In this crisis situation, Mr. Al Dunlap was hired as the CEO and a chairperson of the board as well. Sunbeam was left with no other choice of selling a major division and simultaneous cost cutting in terms of employee’s retrenchment, significant disposal of fixed asset and fixtures. They continued to turn the whole thing around but failed. On the other hand, Dunlap was a very famous person for his strong ability in troubled debt restructuring, extreme layoffs, cost cutting mechanism. His career path was consisting of a numerous successful turnaround of several companies which were in troubled financial turmoil.
The strategy that was adopted by the company to cope up with the distress situation was four-fold, namely to establish a strong and workable strategy, a professionally competent management team which Dunlap sometimes referred to as his Dream team, cutting costs from all operations division and segment wise and lastly but most importantly increasing revenues across all profitable product lines as much as possible. Eventually sunbeam’s stock has shown a flare up.
Dunlap continued to dispose of several of its factories in order to cut fixed costs and ensuring shareholder’s overall wealth does not get strained. One of its biggest move was to lay off over 4000 employees simultaneously across the country and globally.
Accounting Phase: Dunlap has been successful in streamlining the company for temporary basis. Sunbeam’s accounting strategies were not at all free from errors. Upon analysis of the quarterly statements and reports, it was noted that sales of electronic appliances were high in the third quarter as against the fourth quarter which under normal circumstances would have been high as per the seasonality of operations. Analysts were on the lookout and pointed out that there was unexplainably huge amount inventories locking up. Inventory turnover was not that sufficient enough to correspond to the increased turnover. The faulty strategy that was adopted to inflate unnecessarily revenue reporting by selling the products at heavy discounts to the retailers and keeping them off to the warehouses to deliver it to the retailers at later point of time. In this way, huge amount of liquid cash was blocked in the accounts receivable balances. Stock and revenue was inflated in far from the actuals.
In the wake of huge layoffs, the creditors filed lawsuits against the company and eventually the tactic failed for turnaround.
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