A group of senior Elders executives defrauded the company and its shareholders of more than $20 million, resulting in them gaining financial bonuses, a previously undisclosed investigation has revealed.
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While the alleged financial fraud within Elders' live export division was widely reported in the media when it was discovered in late 2013, no details of how or why the fraud unfolded have ever been revealed until now.
It is believed none of the four executives named in a forensic audit investigation of the alleged fraud ever faced sanctions, with two of those executives given redundancy payments when they left the company.
In October 2013 Elders announced it had "identified certain discrepancies and issues in relation to the reporting and recognition of livestock values in its live cattle export division".
In December of that year it announced the preliminary findings of an investigation by forensic auditors PPB Advisory had concluded that "live export trading profits and assets were overstated" by $4.77 million in 2011-12 and $20.499 million in 2012-13 and "that the discrepancies were supported by falsified documentation and journal entries and misleading management representations made to senior management and external auditors".
That was the last time Elders mentioned the discrepancies or investigation, despite the PPB Advisory presenting the company with its final report on or around February 7, 2014.
Few Elders employees in those years qualified for bonuses.
The PPB report said "the ULE business unit nominally exceeded its FY12 Earnings Before Tax budget and Elders paid eight former employees performance bonuses payment totalling more than $750,000".
The report named four staff it said had knowledge of the alleged fraud who were eligible for performance bonuses in FY12 and FY13.
According to the PPB report: "A performance bonus scheme offered to eligible ULE team members may have incentivised certain persons to overstate the ULE business unit's FY12 EBT."
It has never been revealed if anyone involved in the alleged financial fraud ever faced any sanctions or were referred to outside authorities.
However, the PPB investigation revealed that two of the staff the report said had "detailed knowledge of the ULE business unit's accounting system/treatment" received redundancy payments.
Former senior executives with knowledge of the incident said they were disappointed none of those named faced any inquiry or punishment.
"It was disgusting," one former executive told ACM Agri.
"These were shareholders' funds, yet no one faced any consequences."
How it happened
The PPB investigation found that in FY12 the profit for the live export division was increased by $4.77 million by applying an "aggressive interpretation of Elders' livestock accounting procedures" and also not recognising a $500,000 loss on NZ cattle sales that were never revealed to the Elders Finance team or auditors.
In FY13 the ULE unit overstated its profit by about $20.499 million.
PPB Advisory said "the ULE business unit's management knew or ought to have known that its ULE asset accounts were overstated by a total of approximately $20.499m; an amount which should have been recognised as a loss in the profit and loss account, thereby reducing profits".
Much of this figure came from valuing livestock assets for 2012-13 at $24.045 million, when the external auditors valued the livestock at just $7.236 million, producing a $16.809 million over-valuation.
One reason for the higher value was the division not taking into account the decline in the price of livestock that year, as well as losses on sales of cattle on the domestic market.
"We understand that the key reason that neither Elders' finance team nor the auditors identified the overstatement is because Mr (name withheld) of the ULE business unit provided them with a falsified listing to support the $24.045 million balance," the PPB Advisory investigation report said.
PPB Advisory highlighted a February 2013 presentation by ULE team members that estimated the cattle spot price was $1016-$1250 a head.
"That contrasts with the approximately $2500-$2700 per head that the ULE business unit was using for its livestock assets at the time," the PPB Advisory report said.
The audit also identified emails to members of the unit in April 2013 that said "$/hd for ULE is incredibly high compared to September 2012," and "...seems far too high even for dairy cattle".
Leading up to March 31, 2013, when the half-year accounts were completed, the ULE division purchased 1088 Angus cattle in an apparent effort to bring down the average price-per-head of the dairy cattle on its books. PPB Advisory said this appeared to be a tactic to satisfy any analysis by the Elders Finance team.
By adding the 1088 Angus cattle, valued at $450 a head, to the 2772 dairy cattle the unit had on background and valued at $4021 a head, it brought the average price down to $3014 a head for 3860 cattle.
PPB surmised that although it made the price look "more reasonable, they still did not align with reasonable market rates".
"Our investigation has not identified any instances in which the value of background livestock was benchmarked against market rates," the report concluded.
The PPB investigation also revealed instances where cattle were sold on the domestic market without the corresponding reduction in livestock inventory.
In another example, when a live export contract was cancelled in the United States, stock was then sold in the US domestic market for a $158,000 loss. This loss was never recognised against the value of the livestock.
In another case, the export division recorded a $1.2 million profit for a live export contract to Uruguay even though Elders appeared, according to the PPB investigation, "not to have owned/controlled the relevant livestock it was contracted to sell".
Elders' final mention of the episode was in its 2014 annual report, released in November 2014, of a $24.2 million "balance sheet adjustment" for the Live Export Services division for the 2013 financial year.
ACM Agri put a number of questions to Elders, but in a statement yesterday, the company said "due to the decade-old nature of the enquiry we are not in a position to provide a response".
Got any information? Email: ed.gannon@austcommunitymedia.com.au
