In 2015, the food giant Kraft Foods Group merged with fellow food processing company Heinz, forming the Kraft Heinz Company (KHC), which is now the fifth largest food and beverage company in the world by sales. One of the major stakeholders in Kraft and later KHC, was 3G Capital, known for highly aggressive cost saving practices in consumer goods. It was believed that it would apply the same strategy for KHC to reduce debt and issues brought on by Heinz. This seemed to be the case until an investigation by the SEC saw evidence of fraud. The company and two former executives from Kraft were proven to have engaged in expense management practices over a number of years, such as inflating actual cost saving numbers, a range of misleading transactions, and manipulating accounting controls. These cost savings were promised to investors during the merger, so KHC set certain goals. However, despite aggressive measures, KHC had run out of options by 2017. The CEO kept on pushing for nearly unreasonable levels of cost savings, which then led to the scheme at hand of manipulating numbers and balances., which the division wrongfully accepted. The SEC investigation found as many as 59 improperly recognized transactions (Hirsch, 2021).
The SEC conducted an investigation, finding that false and misleading supplier contracts reduced the cost of goods sold, achieving the said cost savings. Kraft cooperated, and changed its financials in 2019, correcting as much as $208 million in improperly noted cost savings. The KHC now also has to pay $62 million to settle charges with the SEC. Meanwhile, two former executives, the COO Pelleissone and the Chief Procurement Officer Hofmann were criminally charged and were either settled or resolved through fines and civil liabilities, with limitations for both from serving in executive positions in the near future (U.S. Securities and Exchange Commission).
References
Hirsch, L. (2021). Kraft Heinz will pay $62 million to settle accusations of an accounting ‘scheme.’The New York Times. Web.
U.S. Securities and Exchange Commission. (2021). SEC charges The Kraft Heinz Company and two former executives for engaging in years-long accounting scheme. Web.