US: U.S. Foodservice auditors committed misconduct-SEC

Two KPMG auditors working on the 1999 audit of Ahold's U.S. Foodservice unit missed several instances of improper revenue recognition a year before an $800-million revenue overstatement scheme began at the company, regulators charged on Thursday.

Auditors Kevin Hall and Rosemary Meyer "discovered that U.S. Foodservice had recognized substantial unearned prepayments" that "explicitly contradicted USF management's repeated representations that USF did not obtain vendor prepayments," said a U.S. Securities and Exchange Commission complaint alleging misconduct.

The scheme that caused U.S. Foodservice and Ahold to overstate earnings from 2000 to 2003 involved vendors signing false confirmations to U.S. Foodservice auditors. The confirmations overstated millions of dollars in rebates either earned by or owed to the company.

Hall and Meyer failed to recognize or act on "red flags," the SEC alleged in a case to be heard by an administrative law judge. Possible sanctions include censure or suspension of the right to audit U.S. public companies.

A spokesman for KPMG -- one of the world's four largest accounting firms -- did not immediately comment on the allegations or say whether the auditors still work for KPMG.

In July of 2004, Timothy Lee and William Carter, former Ahold purchasing executives, pleaded guilty to criminal securities fraud and agreed to cooperate with investigators.

Also in July of 2004, two other defendants, former U.S. Foodservice marketing manager Mark Kaiser and a former finance chief for the unit, Michael Resnick, pleaded not guilty and are awaiting trial on charges of conspiracy and securities fraud in connection with the scandal.

In addition to U.S. Foodservice employees, criminal charges have been brought against 16 U.S. Foodservice vendors for their role in the fraud.

Ahold settled corporate SEC fraud charges in 2004 without paying a fine.