00 Ahold ANNUAL REPORT 2002 25
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
of the accounting for the other joint ventures, we reconsidered our accounting for JMR and concluded that we had
significant influence, but not control over JMR.
In May 2003, we concluded that we would account for the above referenced joint ventures for the period in which we
could exercise significant influence without having control by using the equity method, rather than proportionally
consolidate the joint ventures, so as to better align our accounting with US GAAP and, to a lesser extent, IAS.
In conjunction with the fiscal 2002 audit of USF, our auditors, D&T, discovered in February 2003 through its confirmation
process that certain accrued vendor allowance receivable balances purportedly due from vendors were overstated. Vendor
allowances are payments or rebates from a vendor or supplier to a distributor, such as USF. On February 12, 2003, the
Company authorized an investigation, which was also subsequently authorized by the Audit Committee of Ahold's
Supervisory Board, by the law firm of White Case LLP, assisted by forensic accounting advisors from Protiviti, Inc.
This investigation found that certain senior officers of USF and other employees had interfered with the vendor allowance
confirmation process, uncovered additional confirmation discrepancies, as well as vendor prepayments and contracts with
vendors covering vendor allowance arrangements, which prepayments and contracts had previously not been disclosed to
D&T. Following this preliminary investigation, the Audit Committee of Ahold's Supervisory Board requested that the
Morvillo Firm, assisted by forensic accountants from PricewaterhouseCoopers ("PwC"), conduct a further investigation into
the accounting irregularities and related matters at USF.
On April 25, 2003, the Morvillo Firm reported its interim findings on the accounting irregularities and related matters at
USF. On June 25, 2003, PwC reported further detailed findings. The PwC investigation identified accounting fraud related
to fictitious and overstated vendor allowance receivables and improper or premature recognition of vendor allowances,
which caused vendor allowance income to be overstated and therefore cost of goods sold to be understated. The PwC
investigation found that certain USF senior officers and other employees used inflated recognition rates for vendor
allowances for the purpose of overstating vendor allowance income and accrued vendor allowance receivable balances,
intentionally caused the incorrect accounting for and mischaracterization of vendor allowance cash receipts, and
intentionally caused the misapplication of Dutch GAAP and US GAAP. As part of the fraud, certain members of USF
management and other employees interfered with the audit confirmation process for vendor allowance receivables from
vendors, concealed vendor contracts and their true terms, made misrepresentations regarding the absence of prepayments
from vendors, and caused the creation of certain inaccurate accounting records. The PwC investigation further identified
numerous material weaknesses in internal controls, including a failure to properly record and track vendor allowance
transactions and balances, inadequate accounting and financial reporting systems for vendor allowances generally, and
failure by management to understand and properly apply GAAP and Ahold's stated accounting policies in the area of
vendor allowances and rebates. The Morvillo Firm, assisted by forensic accountants from PwC, also continued to
investigate the roles of certain USF employees and reported its findings and conclusions to the Audit Committee.
Various matters raised by the USF investigation were further reviewed and followed up by Ahold, D&T, and various outside
Ahold legal counsel, and, where appropriate, by PwC, to determine their impact, if any, on Ahold and its financial
statements, including certain USF vendor invoicing practices. As a result of this further review, it was determined that
these practices resulted in overbillings by various USF local branches of various vendors with respect to vendor allowances.
Ahold has recorded an accrual to cover any refunds that USF expects to be required to pay to vendors for these
overbillings, and has restated its financial position for fiscal 2001 and fiscal 2000 with respect to these overbillings.
Other billing practices also were identified at USF that could result in other potential overbilling claims by vendors. Ahold
believes that USF may have defenses to this category of claims and, as a result, no liability has been accrued for this
amount. For a further discussion of these invoicing practices, please see Note 3 to our financial statements.
As a result of finding invoices for suspicious transactions at Disco in July 2002, our internal audit department conducted
an investigation. This investigation, which was completed in early December 2002, identified additional suspicious
transactions. We then instructed forensic accountants at D&T to conduct a further forensic investigation of Disco. During
the course of the investigation, the law firm of Wilmer, Cutler Pickering ("WCP") was retained to assist with the
investigation. On February 17, 2003, D&T reported their preliminary findings to Ahold.
In late March 2003, we determined that a further investigation at Disco was warranted, which was undertaken by WCP and
a forensic accounting team from PwC. The investigation was completed in May 2003. The investigation found a series of
suspicious transactions, some of which involved the use of fictitious invoices to conceal or mischaracterize payments, or
payments that were otherwise improperly documented. The investigation further noted that these payments had been
