Clariant AG, based in Switzerland, is a multi-national chemical company stretching its operations from Kentucky to Saudi Arabia to The Netherlands. I could make an off-handed comment about accusations of “cooking the books,” because some of their chemicals touch on food service and sanitation. However, fraud is never pretty – or funny, especially when it comes to publicly traded companies and investors.
Internal Whistleblowers
There is evidence that alleges that the accounting staff of Clariant intentionally manipulated the revenues in order for the company to make their projected numbers. The company, according to Bloomberg Business reporters will now be forced to restate their financial results for 2020 and the first half of 2021. An investigation is underway to see if “whether employees incorrectly booked provisions and accruals with the aim of boosting results to meet targets. Accruals can lead to gains on a company’s income statement before cash has changed hands.”
The CEO of Clariant, Conrad Keijzer said in a February 2022 financial media conference call, “We have strong indications that there have been employees in this company who thought that tricking the system was good if it helped to better meet the guidance. This is completely unacceptable.”
In other words, financial people within the organization were involved in trying to affect the stock price.
Sales and revenues that weren’t there
The fake revenues, allegedly included “restructuring charges, indemnities, warranties and environmental provisions with questions about accounting compliance and correct timing of the bookings.”
The level of sophistication of such manipulation can only take place when no one in power is looking. According to Bloomberg, the company has “suspended staff involved in the manipulation.”
The man in charge of audit and compliance admitted during the same press conference that they have no idea how long the fraud has been perpetrated. Unfortunately, this accounting scandal has emerged along with several other recent accounting fraud cases that have raged through Europe.
For now, Clariant investors are forewarned that this delay will likely lead to the company being forced to add to renewed concerns over the need for Clariant corporate governance concerns.” In the meantime, the company hasn’t experienced that the unethical behavior has resulted in an impact on cash. They are holding off on the annual meeting until they get a firm grip on the impact that the fraud has had on the company.
While the cash and cash instrument positions of the company have (allegedly) not been affected, that is not to say that investors, tipped off by insiders, have failed to benefit from the manipulation. That internal accounting fraud has gone on for so long within the financial departments of a multi-billion-dollar, multi-national company, signals a massive ethical failure.
Don’t be fooled
We are too easily fooled by the supposedly sophisticated image of a multi-national organization. We often place a company such as Clariant AG on a different ethical level than a local autobody shop or small chain of chiropractic clinics. It is a dangerous and biased assumption.
Fraud does not care about the revenues, global reach, business type or “purpose-driven” mission statements. In the end, if an employee realizes that no one is looking, or if they can satisfy a need for cash or power and then rationalize their behaviors, the situation is ripe for fraud.
Ethical training should be an integral part of every organization. The training must be reinforced. For, in the end, one employee alone can – and has – brought down major organizations.
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