April 20 2002
The $20 million fraud scandal involving K&S Corp may drag another auditor into the firing line, with the trucking company considering legal action against KPMG.
K&S chairman and major shareholder Allan Scott is believed to be furious that such a large sum was misappropriated from the company undetected by its auditors and is contemplating all avenues to recover the funds.
It is one of the largest ever instances of corporate fraud involving an individual employee in Australia.
Former Coles Myer chairman Brian Quinn served two-and-a-half years' jail after defrauding the retailer of $4.5 million.
Any action against KPMG, which declined to comment on matters specifically concerning the SA-based K&S, would coincide with the fall of Andersen over its involvement in the $US63.3 billion ($117 billion) collapse of Enron and its role in the collapse of insurer HIH.
The alleged fraud has shattered investor confidence in K&S, despite desperate assurances by Mr Scott the company was not in financial difficulty as a result of the revelations. The stock yesterday plunged 92c, or 25 per cent, to $2.65, leaving the entire company with a market value of $79.5 million, down $27.6 million in a single day.
Yesterday, long-serving K&S company secretary Dennis Craig Telford, aged 39, appeared in the local court at Maroochydore on Queensland's Sunshine Coast, where he has a million-dollar beach house. Telford, who was being groomed as K&S's next managing director, was due for extradition today to Adelaide for a directions hearing in the Adelaide Magistrates Court on Monday morning. He is expected to face larceny or fraud charges.
K&S revealed yesterday "approximately" $20 million had gone missing, with the precise amount still uncertain. So far it has recovered only $3 million. The remainder is thought to have been frittered away on horse racing.
The company, about 60 per cent owned by Mr Scott, said it expected its profits for the 2001-02 financial year to take a $14 million hit after tax. It would fall by $1 million a year in future years due to interest charges on emergency borrowings to cover the lost funds.
The misappropriated $20 million is equivalent to more than three times the company's $6 million net profit last year and almost twice its $11.66 million earnings before interest and tax. K&S, in an attempt to stall the sell-off, issued a trading update for the three months to March 31, in which time revenue jumped 21 per cent.
"We are confident of our future," Mr Scott said.
Analysts said the missing funds would not send the company broke, but they claimed it would take a long time to repair its damaged reputation.
"It significantly undermines the internal systems within the company," said Jason Smith, transport analyst at Salomon Smith Barney. "As a consequence there is unlikely to be any significant interest in the stock for a couple of years."
Coincidentally, KPMG earlier this month published a survey on corporate fraud, claiming that it was "not just alive and well in Australia and New Zealand - it is thriving". The survey of 361 of the biggest public and private companies found 55 per cent had detected at least one incidence of fraud over the past two years.
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