Scheme led to years of artificial entries in balance sheets totaling at least R$20bn
06/14/2023
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Leonardo Coelho Pereira — Foto: Brenno Carvalho/Agência O Globo
Five months after the outbreak of the crisis at Americanas and the announced multi-billion hole in its accounts, the retailer’s management team admitted for the first time that there was accounting fraud in the company, and not just “inconsistencies,” as it initially said, according to a material fact released on Tuesday. In addition, it also mentions the existence of a practice of falsifying financial statements, creating fictitious contracts for advertising funds for years — information that had not previously been communicated by the retailer.
The company also accused seven members of the former management team, two banks, and its last two consulting firms (including the current one) of acting fraudulently, at different times in recent years, according to Tuesday’s hearing of the management team in the investigative parliamentary committee (CPI) focused on Americanas in Brasília.
Internally, the intention would be to improve the numbers of the group, within a scheme that involved advertising funds and supply finance. The material fact cites former CEO Miguel Gutierrez, former directors Anna Christina Ramos Saicali, José Timótheo de Barros, and Márcio Cruz, and former executives Fábio Abrate, Flávia Carneiro, and Marcelo Nunes as participants in the fraud.
In total, there are R$50.1 billion as debt from the court-supervised reorganization process, according to a May update, and R$21.7 billion in fraudulent entries, which are not financial debts.
Together with the lawmakers of the investigative committee, the retailer signaled the existence of an alleged collusion among former directors, which led to artificial entries in the financial statements of R$21.7 billion for years, according to September 30, 2022 data, in order to improve bottom lines. The figures are in a report by the retailer’s legal advisors, part of which was published in the material fact.
By enhancing the financial statements, market sources argue, the intention was to increase dividend payouts and bonuses to executives. In 10 years, R$700 million have been distributed in dividends and salaries to former directors.
Neither the board nor the primary shareholders of Americanas — billionaires Beto Sicupira, Jorge Paulo Lemann, and Marcel Telles — are held responsible in the material fact. This statement was released after Monday’s meeting of the board, which includes members representing the trio and independent directors.
“The documents today show no involvement of the board,” Leonardo Coelho, CEO of Americanas since February, told the lawmakers. The former directors were removed or left the company. The shareholders of the group received nearly R$750 million in dividends over the last 10 years, close to the income of the former executives.
According to the material fact, preliminary data from a report by the company’s legal advisors (lawyers hired by Americanas) show efforts by the previous management to conceal the true situation of the company from the board and the market.
It states that “several contracts were identified for cooperative advertising budgets and similar instruments” to artificially increase operating results.
These entries, totaling R$21.7 billion, are divided into two parts. The larger, of R$17.7 billion, includes commercial agreements, that is, in bonuses (in this case, advertising budget) paid by industrial companies to the retailer when it reaches a certain sales target.
This kind of transaction is very common in the retail sector, but the former management team allegedly created fake contracts that allegedly “inflated” the line of commercial agreements.
This reduces costs of goods and the amount payable to suppliers, thus increasing profits and gross margins.
The remainder R$4 billion were offset by accounting entries “in other asset accounts” of the company, which failed to elaborate on the matter. The data is preliminary and unaudited.
In addition to this structure, Americanas said that in order to generate the necessary cash to keep operating, the management team used supplier finance. This had already been disclosed by the company when it unveiled the accounting hole.
“You can create profit with spreadsheets, but not cash. Maybe the former management team could falsify profit, but it could not fake cash,” Mr. Coelho told lawmakers. Supplier finance was used to generate cash, and advertising funds were used to generate fictitious profit.
Supplier finance was used to generate cash on the one hand, with an inflow of R$18 billion, but since this would generate a very large debt, a mechanism was created with advertising funds to reduce this account. “For analysts who don’t have access to the company’s books, and no analyst has access to the company’s books, these entries are perceived as net figures,” he said.
According to him, Americanas paid R$1.7 billion in taxes in 2022, “a good part of which on a non-existent profit,” and that, to outside observers, the company looked strong, with great cash generation. “It’s a complex fraud, not a simple fraud,” he said.
The investigation involved R$18.4 billion in supply finance transactions in recent years, according to preliminary and unaudited figures, and R$2.2 billion in capital financing.
At the public hearing, Mr. Coelho disclosed cell phone messages and e-mails between former executives, made with the intention of coordinating the fraudulent practices. He claimed that the internal investigations found financial statements with an “internal view,” with more negative financial data, and another with a “board view,” with more positive numbers. The latter is expected to be analyzed by the board and be released to the market.
The differences would reflect the manipulations of the former executives. He said that in 2021, a loss before interest, taxes, depreciation and amortization of R$2.88 billion turned into a profit of R$733 million.
The CEO also presented messages on the Whatsapp app of the former directors, dated March 2017, in which the then CFO José Timotheo Barros talks about the need to show the market a debt ratio below up to 3.1 times, and that it would be necessary to use “all levers” to do so, because if it were between 3.3 and 3.5 times, it would mean sudden death.
In this case, the levers would be actions to reduce debt by improving cash flow, and this could be obtained through supplier finance transactions.
Mr. Coelho also presented an exchange of messages between former executives which, in his view, shows a previous alignment to answer the questions of the audit committee on the non-existence of supplier finance.
The executive also presented exchanges between the company and KPMG and PwC – the latter is the company’s current audit firm.
In an email between the audit firm and Americanas, an employee with PwC sent, in May 2016, a new “text proposal” on how the retailer can inform in its financial statement the non-existence of supplier finance. The auditor even asked for an “OK” from Americanas’s management team. Despite that, Mr. Coelho says that this investigation “still needs context.”
As for KPMG, the retailer said the audit firm made changes in its own opinion, which changed the tone of a more critical analysis of aspects of the financial statements of 2016 and 2017. What were “significant deficiencies” became recommendations “that deserve attention,” for example, related to swap transactions.
Sought for comment, PwC and KPMG said they could not comment on the case. Itaú said it had no responsibility for a client’s financial statements. Santander, also cited in the presentation to lawmakers, said in a note that Americanas had admitted in a material fact that “the financial statements of the company had been falsified by its previous management team.” According to the bank, the company itself mentioned that the previous management team hid from the market the true situation of the company’s results and assets.
*Por Adriana Mattos, Raphael Di Cunto, Marcelo Ribeiro — São Paulo
Source: Valor International