ARNE Madsen, the stern faced chairman of ISS, did not mince his words yesterday when describing the calamity that has hit the Danish company, the world's biggest contract cleaning group. The uncovering of systematic false accounting in its US business was "an earthquake of great dimensions", he said.
The affair has shaken ISS to its foundations. A year ago, it was riding high, a source of pride in Denmark. Boasting 120,000 employees worldwide and annual turnover approaching 15 billion Danish krone (£1.6 billion), ISS also owns the firm Contract Cleaners in the Republic.
Yesterday, Mr Poul Andreassen, the man who built the company up over 30 years, quit the board leaving Mr Waldemar Schmidt to explain the disaster that led ISS to report a net loss of DKr2 billion for the first half of this year.
The losses were blamed on what ISS says was a deliberate and systematic falsification of accounts by finance staff in its US division, the group's biggest unit that, over 10 years, led to repeatedly overinflated profit statements.
"We are not talking about just a tweaking of the accounts," Mr Schmidt admitted grimly. "Our margins between 1989 and 1996 in the US were really about 0.5 per cent, not the 4 per cent reported. We lost about DKr1 billion over the period."
The effects were laid out in painful detail in yesterday's half year results statement. A total of £91 million in charges and provisions was made to cover the losses resulting from the affair in the US business.
A further DKr1.2 billion in good will related to the US operation was written off in the profit and loss account. Shareholders' equity, slumped from DKr2.6 billion at the end of last year to DKr729 million at the end of June.
ISS executives say the deception was painfully simple. It took place both in the core cleaning business of the division and in the self insurance business ISS runs to cover its own employees. Auditors and group management were provided with false documentation about the state of the business.
"Fictitious account statements were made before and after audits to confirm the false documentation," said Mr Jorn Wendel Andersen, chief finance officer.
THERE are inevitably embarrassing questions raised about why group management and the auditors, Arthur Andersen, in New York failed to spot the scandal Mr Schmidt now admits that the ISS US unit was allowed extensive independence. "The view was it had the necessary resources to run its own internal controls," he says. A "forensic" audit is also under way to determine if there was negligence on the part of Arthur Andersen.
The big mystery is why the accounts were falsified. Mr Schmidt says that no evidence has so far been uncovered suggesting any of those involved made personal gains. "I can't exactly see what the motive was," he says.
ISS says Mr Michael Dudas, former chief of finance in the US division, has been fired, and five others fired or suspended.
The Danish press has speculated that the affair might have been triggered by rivalry over the succession.
Mr Andreassen as group chief executive. Mr Slipsager quit after losing that title to Mr Schmidt But Mr Schmidt himself says he does not, accept that theory. He also rejects the idea that severe pressure from group headquarters to increase performance may have been a factor.
Other speculation that the false accounting was prompted by profit related pay schemes also does not stand up to scrutiny, ISS officials say.
WHATEVER the motive, ISS must now pick up the pieces. The main thrust is to sell a majority share of the ISS US unit to a partner by the end of the year. That way, ISS would keep an interest in the business but remove it from its own balance sheet, eliminating group debt and it is hoped restoring some health to the ISS shares.
