Americanas: accounting gap is BRL 25 billion – 06/14/2023 – Market

Accounting fraud allegedly committed by the former board of directors of Americanas inflated the company’s results by R$ 25.3 billion – this was the fictitious profit accumulated over the last few years (the company has not yet said how many years), a figure that represents the size of the accounting breach, according to a statement released this Wednesday (14) by the company.

The values ​​manipulated in different frauds, however, are almost double: R$ 45.9 billion, according to a material fact released by the company last Tuesday. The devices were created to give a healthy appearance to the numbers of the retailer founded in 1929 in Niterói (RJ) by American immigrants and passed, in the early 1980s, to the command of billionaires Jorge Paulo Lemann, Marcel Telles and Beto Sicupira.

With difficulties created by high interest rates, accounting fraud was a way of keeping doors open for new lines of financing from banks and the government.

The option of the old board, according to a report prepared by the new executives, was to work with accounting – the sector responsible for receiving, classifying, registering and interpreting all the documentation related to the company’s economic and financial movements, in order to determine its assets, rights, obligations , profit or loss.

Understand how fraud works.

How does accounting work?

In “traditional” accounting there are two main columns: assets (everything the company has in its favor, such as real estate, assets, accounts receivable, etc.) and liabilities (everything the company has as obligations, that is, debts, payment of taxes, wages, etc.).

It is these numbers that analysts look at to assess the health of the company’s accounts, whether to invest in it or to grant credit.

By defrauding its balance sheet, a company may falsely appear healthy to investors or more capable of paying to eventual creditors.

A company’s net profit is what is left over from the revenue, after paying fixed expenses (such as rent, payroll, water and electricity) and variables (commissions or sales taxes, for example).

In which part of the balance sheet were the alleged frauds by Americanas?

This Tuesday (13), the company stated that, in the liabilities column, the accounting of obligations with suppliers was defrauded from the creation of fictitious credits (through “Contracts of Cooperative Funds – VCP”), which reduced only from the point from an accounting point of view the amounts that the retailer needed to pay to these companies.

At the same time, Americanas treated drawee risk operations, also known as “advance to suppliers” or “forfait”, in an unusual way. Through them, a bank advances to the supplier the amount that the retailer should pay and becomes the store’s creditor, charging interest for it.

According to analysts, the fraud became necessary because Americanas began to need an increasing volume of this type of financing.

Why did Americanas need to resort more and more to drawn risk operations?

According to André Pimentel, a partner at the consultancy Performa Partners, as the retailer’s sales grew, it needed more and more working capital. However, its operations did not generate cash. The solution found was the withdrawn risk, because with that Americanas extended its payment terms —by negotiating with the banks a longer period to return them the money they had advanced to the suppliers.

It works like this: retailers buy a product for R$10, for example, within a period negotiated with the supplier. But the supplier wants to pay in advance and negotiates with the bank, receiving R$ 9 for the goods. At the other end, the bank extends the period to receive from retail.

“If the retailer has to pay the R$ 10 to the supplier in 60 or 90 days, he asks the bank for 120 or 150 days, which gives him a break in working capital, it is a financial breath”, says consultant Alberto Serrentino, from Varese Retail. “For that, of course, the bank will charge R$ 11, for example”.

What is the alleged accounting fraud involving the drawn risk?

These drawn risk operations, in which the company no longer owes payment to the supplier and starts to owe the bank, imply changes in the accounting records. When the retailer owes the supplier, this debt is in the accounts payable column, according to André Pimentel.

But if the bank anticipates and settles the amount with the supplier —and Americanas assumes the responsibility with the bank to return the money to it— this becomes a financial debt.

From an accounting point of view, it would be a short-term debt, for being less than 12 months, and would go to current liabilities, says Pimentel. Current liabilities comprise all debts and obligations of the company with a maturity of less than one year.

But when Americanas carried out this operation, instead of transferring the amount from the “accounts payable” column to the “financial debt”, the company left the amount in the “accounts payable” column, until the date of settling the amount with the bank. When the company finally paid the bank the fee for trading the drawn risk, it looked like it was actually paying suppliers, he says.

“A side effect of this practice –possibly well calculated– was to inflate the result by accounting for the interest on these financings also in the supplier account. That is, the less financial expenses, the greater the net profit of Americanas”, says Pimentel.

And how do VCP contracts enter the story?

VCP contracts are a retailer-supplier agreement whereby suppliers provide discounts on high volume purchases in exchange for participating in the company’s advertising.

In the case of Americanas, however, these contracts were supposedly fictitious: Americanas informed that it received the discount, but it did not occur.

This was necessary because, with the increasing risk of withdrawn operations being accounted for in the accounts payable to suppliers column, this item on the balance sheet began to grow too much.

Analysts, when they put a magnifying glass on balance sheet numbers, always verify that they make sense when compared with other information declared by the company. In the case of accounts payable to suppliers, for example, they check whether this indicator is balanced in relation to the average payment term, inventory volume and average monthly sales volume, for example.

As Americanas had been declaring the risk drawn on the supplier account, and not on the debt account, this account began to grow disproportionately. To disguise the distortion, the solution, Pimentel points out, was to artificially reduce other numbers of that same account, inventing discounts on payment to suppliers.

“The objective was not to inflate the result – but rather to make room on the balance sheet in order to account for the contracting of financing involving operations with drawn risk. They had a cash problem to solve”, says Pimentel, who worked on the restructuring of Americanas in the late 1990s, when he was at Galeazzi & Associados and, before that, he worked at PwC, the current auditor of Americanas.

What will have to be done now?

According to Pimentel, the correction will have to be made when assuming the unaccounted loss. Considering the last available balance of Americanas, referring to the third quarter of 2022, the company’s equity (NE) was R$ 14.7 billion. Discounting the accumulated loss of BRL 25.3 billion, the company should have a negative equity of BRL 10.6 billion.

Equity represents the difference between a company’s assets and liabilities.

For Pimentel, however, the negative equity must be even greater. “The R$ 25.3 billion loss needs to be corrected, and the PL today must certainly be lower, since the results of the fourth quarter of last year and the first quarter of this year must have already consumed another piece of the indicator”, he says.

“If we add all this to the expected costs of judicial recovery, provisions for future events, etc., the PL will drop much more.”

In view of this, the BRL 12 billion contribution promised by the trio of billionaires – who until the end of 2021 controlled the retailer and today are Americanas’ main shareholders – to save the company proves to be insufficient.

According to Pimental, all the fraud perpetrated by the end of 2022 by the former board, however, could have gone ahead if it weren’t for a macroeconomic data that weighed heavily on the accounts: the Selic rate, which for more than a year has been at two digits (since October last year, at 13.75%).

It would be impossible, according to him, to continue presenting a fictitious financial debt of 1.7 times Ebitda (earnings before interest, taxes, depreciation and amortization), which amounted to R$ 5.3 billion at the end of the third quarter of 2022.

“The effectiveness of the impact of this ‘pedal’ on Americanas’ cash ended up being very restricted”, says Pimentel. “It reached a point where, in order to achieve a minimum positive impact on cash, the number of risk operations withdrawn had to be much greater. The scheme became unfeasible and… It exploded.”