Coca-Cola investigates fraud claims

Coca-Cola is investigating a series of allegations by a former internal auditor that the company routinely engaged in fraudulent behaviour to inflate its revenues by millions of dollars. The ex-employee, Matthew Whitley, made the claims in a wrongful dismissal lawsuit.

He alleged that the executive running Coca-Cola's Burger King account hired an outside consultant to spend up to $10,000 on value meals at the fast-food chain in Richmond, Virginia, to make it appear that a test of "Frozen Coke" had been successful. Based on the results of the pilot, Burger King backed a $65m national roll-out of "Frozen Coke" that subsequently flopped, the lawsuit alleged.

It also claimed that before the end of each quarter in 2002 fully loaded trucks "would be ordered to drive about two feet away from the loading dock" so the company could book "phantom" syrup sales.

Mr Whitley, who had been director of finance at the fountain division, claims he was fired in March after repeatedly trying to bring a "culture of dishonesty" to the attention of management. The leaders of the division "executed their illegal activities using theft, fraud and deception to cheat shareholders, customers and competitors," the lawsuit claimed.

Coca-Cola has dismissed Mr Whitley as a "disgruntled former employee" who had previously demanded $44.4m to keep quiet. But the company's board of directors audit committee, which includes Warren Buffett, has commissioned an independent inquiry by the law firm Gibson, Dunn & Crutcher and accountants Deloitte Touche Tohmatsu.

"Until the investigation is complete we cannot have a basis on which to respond to these allegations," the company said. In an internal memo to employees this week, Coca-Cola general counsel Deval Patrick called the charges "very serious".

Many of the allegations relate to accounting improprieties. In one case, Mr Whitley claimed Coke should have written off the value of defective frozen drinks machines which could leave a metal residue.