Deloitte Brazil Employee Raised Parmalat Red Flag
Nearly three years before Parmalat SpA's collapse, an auditor at Deloitte Touche Tohmatsu in Brazil raised an alarm about a unit of the dairy group that has since been found to be at the heart of the Italian company's multibillion- dollar fraud, Monday's Wall Street Journal reported.
In March 2001 and again in early 2002, the auditor voiced worries to partners in Deloitte's Italian arm about financial transactions connected to a Parmalat subsidiary in the Cayman Islands, Bonlat Financing Corp., according to e-mail messages from employees of the accounting firm seen by The Wall Street Journal. "I am very concerned about this," the auditor said in one e-mail.
Despite these warnings, Deloitte & Touche SpA in Italy failed to spot the fraud at Parmalat, where it was lead auditor from 1999 to early 2004. Indeed, Deloitte Italy expressed concerns that an attempt by Deloitte Brazil to raise a red flag over transactions involving Bonlat could endanger its relationship with Parmalat.
One Italian partner wrote to the U.S.-based head of Deloitte's international network to warn that the questions raised in 2002 by the Brazilian auditor might prompt Parmalat to sever its "multimillion-dollar world-wide engagement" with Deloitte, according to a Deloitte memo seen by The Wall Street Journal.
The documents raise the possibility that the accounting firm missed an opportunity to expose one of Europe's biggest-ever corporate frauds and save investors billions of dollars. The Italian unit of Deloitte continued to sign off on Parmalat's finances.
Bonlat emerged late last year as a key to Parmalat's fraud. On Dec. 19, 2003, Parmalat announced that a 3.9 billion euro ( $4.73 billion) bank account purportedly held by Bonlat was fake. Within six days, Parmalat sought bankruptcy protection.
More than 10 billion euros of Parmalat's money still is unaccounted for.
Wall Street Journal Staff Reporters Alessandra Galloni in Milan and David Reilly in London contributed to this report.
