A Special Committee, established to investigate the inventory value of Sims Metal Management in the UK, found the company had overstated their inventory by about 29%. The committee concluded that a write-down of $78m would be required, compared to a preliminary assessment of about $60m. Independent auditors PricewaterhouseCoopers verified the findings.
The Committee, with the assistance of the Group CEO and CFO, internal audit, PwC, and Baker & McKenzie, oversaw a thorough investigation at the Company's Newport and Long Marston facilities in the UK. A full physical count of inventory was performed at the Newport facility of which 85% of all the inventory was re-weighed and evaluated.
The UK write-down will significantly impact the Company's first half Fiscal 2013 results and also cause a restatement of prior period results. They Group CEO and CFO will be tasked with implementing changes in people, culture, and controls, and the Committee will expand the internal audit function, broadening the scope of internal audit work.
The committee highlighted root causes of overstatement that you should be aware of in your organisation, such as:
Failure to adequately supervise operations (including inventories)
Failure to responsibly safeguard assets
Failure to maintain adequate controls over financial reporting related to inventory
Incorrect implementation of group internal controls for the expanding SRS business
Internal audit failing to perform end-to-end walk-throughs of transactions
Failure to successfully integrate IT systems.
When was the last time you valued your inventory, and are you sure it's correct?