Diamond Foods
Diamond Foods
1. How did weaknesses in Diamond Foods’ internal controls contribute to the accounting scandal?
The audit committee of Diamond’s board was conducting an investigation of Diamond’s accounting for certain crop payments to walnut growers. This is where the scandal sort of took off. Filings done to approve the accounting practices were signed off by the companies CEO and CFO. Then there was an independent audit committee who was assigned to probe the company’s practices. The committee concluded that payments to growers of about $60 million in September 2011 and about $20 million in August 2010 weren’t accounted for in the correct periods. Diamond’s financials for those years and for certain quarters within them could not be relied upon. The internal controls, if they were more focused, could have led Diamond to not cheat on their books. The rigidity of the controls were not rough enough and that’s what led to this demise.
2. Why might top management have been willing to ignore red flags indicating misconduct?
The idea of “bigger is better” sort of put blinders on those with most control in the company. The marred the ideals of the workforce under them and so the fraudulent culture thrived. The only priority that was on the minds of the CEO and CFO was dominating the snack foods industry. With this, and only this goal in mind, they were doomed. The willingness to ignore some pretty big red flags showed they did not uphold a strong code of ethics.
3. Describe how Diamond Foods intends to address ethical risks to prevent similar misconduct in the future.
Taken right from Diamond site, “Diamond Foods takes responsibility for continually improving our processes, practices and actions to maintain high standards in the ethical sourcing of commodities and materials associated with the manufacturing of our products. Diamond's compliance program encompasses verification, audit, certification, internal accountability standards, and training.” In
1. How did weaknesses in Diamond Foods’ internal controls contribute to the accounting scandal?
The audit committee of Diamond’s board was conducting an investigation of Diamond’s accounting for certain crop payments to walnut growers. This is where the scandal sort of took off. Filings done to approve the accounting practices were signed off by the companies CEO and CFO. Then there was an independent audit committee who was assigned to probe the company’s practices. The committee concluded that payments to growers of about $60 million in September 2011 and about $20 million in August 2010 weren’t accounted for in the correct periods. Diamond’s financials for those years and for certain quarters within them could not be relied upon. The internal controls, if they were more focused, could have led Diamond to not cheat on their books. The rigidity of the controls were not rough enough and that’s what led to this demise.
2. Why might top management have been willing to ignore red flags indicating misconduct?
The idea of “bigger is better” sort of put blinders on those with most control in the company. The marred the ideals of the workforce under them and so the fraudulent culture thrived. The only priority that was on the minds of the CEO and CFO was dominating the snack foods industry. With this, and only this goal in mind, they were doomed. The willingness to ignore some pretty big red flags showed they did not uphold a strong code of ethics.
3. Describe how Diamond Foods intends to address ethical risks to prevent similar misconduct in the future.
Taken right from Diamond site, “Diamond Foods takes responsibility for continually improving our processes, practices and actions to maintain high standards in the ethical sourcing of commodities and materials associated with the manufacturing of our products. Diamond's compliance program encompasses verification, audit, certification, internal accountability standards, and training.” In