Yesterday morning, the New York Times reported that, “Macy’s Discovers Employee Hid Millions in Delivery Expenses.” The article leads with this:
“Macy’s said Monday that an employee had misstated up to $154 million in delivery expense over the past few years, forcing the retailer to delay a much-anticipated earnings report that Wall Street uses to gauge the strength of holiday shopping. The department store chain rushed to release an abridged set of financial results, which were a mixed bag, with signs of weakness and pockets of strength.”
There wasn’t much more detail, but the implications are that this was the work of a single employee, over a number of years, and that the misstatement was intentional. It does say the employee ‘hid’ the charges. This raises a lot of questions.
Was this intentional or an honest mistake? The reporting makes it sound intentional, although it is hard to see how the employee would have benefited from the misstatement. After all, the report adds that “…the employee error did not affects its cash flow management or vendor payments.” If the employee didn’t embezzle any money, why did they “hide” these amounts?
Maybe it was stated this way to shift the blame to an individual employee (subsequently terminated), rather than blame the supervisors who didn’t properly review the work and catch the misstatement. Just throw the employee under a New York City bus.
How could this happen? The article doesn’t say, but I’ll go out on a limb and guess that the delivery expenses were capitalized as part of inventory rather than expensed as part of Cost of Goods Sold. After all, freight-in on purchases of inventory is correctly capitalized, while freight-out to deliver goods to customers is expensed as part of COGS. It wouldn’t be surprising to find that an accounting clerk didn’t know the difference and just miscoded the freight-out bills to freight-in. And who says one person can’t make a difference?
How could $154 million get missed? Well, it’s probably like Congress. A million here and a million there and pretty soon you’re talking real money. The individual transactions were probably immaterial and just added up over multiple years. The supervisors never noticed.
Now, I know what you’re thinking. I don’t want to cast aspersions on Macy’s financial staff, without first assuring all of you that my own house is in order.
I can assure you that we, and I think I speak for all of us at David Lightfoot CFO, LLC, have never hid, nor subsequently had to restate, $154 million. In fact, we have never misstated, restated, ice-skated, double-dated or Watergated 154 million of anything! Ever!
Part of this is due to our air-tight system of internal controls, reviews and oversight. Part of this is due to our highly trained staff (me). And most of this is due to David Lightfoot CFO, LLC never having had 154 million of anything.
Have a good Thanksgiving everyone.
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