Reebok India said to hire E&Y to help restructure its operations

Reebok India has hired consulting firm Ernst and Young (E&Y) to help restructure its operations following allegations of financial fraud, two people with direct knowledge of the matter, including a top government official, said independently. They declined to be identified.

Reebok India, a subsidiary of sportswear maker Adidas AG, hired E&Y in June, one of them said. “Basically, it will be a two-step process. First, E&Y will conduct a diagnostic analysis of what actually went wrong at Reebok, following which they will plug the gaps.”

Reebok India, in an emailed statement late Monday, said it has hired E&Y for a business review. “As announced earlier, we are reviewing our business activities and making changes to our commercial practices at Reebok India as a part of our Route 2015 profit-enhancing initiatives. We have engaged the services of Ernst and Young to help us in this process,” the company said.

KPMG, the company’s global auditor, has been auditing the books of the Indian arm as well. Reebok’s statutory auditor is New Delhi-based Narasimhan and Co.

Both the people cited above said it was unclear whether KPMG India was still auditing Reebok’s books. A KPMG spokesperson declined to comment on the matter. An E&Y spokesperson said he could not confirm the development immediately.

On 31 May, Mint reported that KPMG India could also come under the scanner of law enforcement agencies looking into the alleged financial irregularities at Reebok India.

Adidas had hired the forensics arm of KPMG in March 2010 to secretly investigate suspected irregularities at Reebok India. Around that time, Reebok India was getting integrated with the local unit of Adidas.

KPMG cleared two former Reebok India officials—former managing director Subhinder Singh Prem and former chief operating officer Vishnu Bhagat—whom the company claimed had indulged in “criminal conspiracy” and “fraudulent” practices over a period of time.

Adidas bought Reebok International Ltd in August 2005 for $3.8 billion (around Rs.20,862 crore) but the merger of their Indian operations was completed only in 2011. KPMG had submitted its final report in June 2011.

In a related development, the income-tax (I-T) department is examining whether Reebok India defaulted on tax payments due on income earned from two separate insurance claims filed by the company in lieu of damages due to a fire at one of their warehouses, said the government official cited earlier.

“It appears that the local and global arms of the company had filed separate insurance claims for the damages. After deducting the value of the loss due to the fire, the company made a significant profit from the money they got from the claims. It appears that they did not pay the full tax on that amount,” this official said.

On Sunday, PTI reported that the I-T department had found that this case could involve tax evasion to the tune of Rs.140 crore.

Mint could not independently confirm this. Reebok said it could not immediately comment on this. A company spokesperson, however, said that the fire occurred in 2009 and not last year.

Adidas had accused the two Reebok India former executives of a Rs.870 crore fraud. The company filed a first information report (FIR) with Gurgaon police on 21 May accusing Prem and Bhagat of fraud.

Following this, the government asked the Serious Fraud Investigation Office (SFIO) to investigate the matter and come up with a report in four months. The SFIO comes under the corporate affairs ministry.

Popular Posts