Macy’s holiday blues
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Holiday blues
In supply chain, we often talk about the importance of auditing our partners. Well, that practice extends to our internal operations/divisions as well. Macy’s may be learning that lesson the hard way. In the days before millions watched the annual Macy’s Thanksgiving Day parade, the department store giant was anything but thankful.
On Nov. 25, the retailer announced it was delaying its Q3 earnings report and conference call until an independent investigation could be completed regarding a discrepancy in its accounting. It seems that, while preparing its Q3 report, Macy’s uncovered some $132 to $154 million in unaccounted-for delivery expenses. The company said an employee, who was no longer with the retailer, had made “made erroneous accounting accrual entries to hide approximately $132 to $154 million of cumulative delivery expenses from the fourth quarter of 2021 through fiscal quarter ended November 2, 2024.” In its statement, Macy’s did not say when the employee left the company, but it added that “there is no indication that the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments.”
Macy’s booked approximately $4.36 billion of delivery expenses during this time period. “At Macy’s, Inc., we promote a culture of ethical conduct,” Tony Spring, chairman and CEO of Macy’s, said in a statement. “While we work diligently to complete the investigation as soon as practicable and ensure this matter is handled appropriately, our colleagues across the company are focused on serving our customers and executing our strategy for a successful holiday season.”
Where was the failure?
Until Macy’s releases more information, or the ever-popular “sources” hand out some nuggets of information, it’s going to be difficult to determine exactly what happened and why Macy’s was not aware of this activity. The employee was responsible for managing accounting for small package deliveries. Because of this, it may have been relatively easy for the employee to hide the fraud, a few dollars at a time. A couple of possible explanations (and these are just me hypothesizing since we don’t have any official news on this) is that that there could have been internal pressure to hold down costs, or maybe incentives for coming in under budget. It also could be incompetence or any number of other possibilities. But, these are just guesses as to why the employee may have done this.
So, how did Macy’s not know? Again, small transactions can be easy to miss. Also, Macy’s has said the employee is no longer with the company, so it’s possible that they left prior to Q3 and in comparing delivery expenses, there was a larger than normal expenditure in Q3. Again, we don’t know for sure how Macy’s identified the fraud when it did, but it’s important to remember that the 2002 Sarbanes-Oxley Act can be used to hold company executives liable for financial statements. This may be an internal investigation at the moment, but the SEC may still come calling.
The bigger question, to me, is how was it missed? Even for a corporation the size of Macy’s, $130-million-plus is not an insignificant sum.
Stopping fraud from within
Experts will always suggest auditing your partners. In a world where ethical supply chains and global regulations are ramping up pressures, visibility throughout your supply chain is critical. But, visibility within your own organization can’t be overlooked. As companies work to break down silos within, they need to apply the same due diligence they do to outside customers and partners. It’s impossible to say whether Macy’s did enough internally here or not, but having a strong internal audit team (or an outside firm that specializes in auditing) is a great way to mitigate the risks from within. Several years ago, Deloitte Risk Advisory put forth a white paper on internal audits. Among the suggestions were to get a seat at the executive table, increase scrutiny of emerging risk areas, be involved in strategic projects and advise on risk upfront, and utilize data analytics.
领英推荐
Financial audits, as is the case with Macy’s here, are critical. The goal of financial audits is to ensure accuracy in a company’s financial statements. But it is also a line of defense to prevent fraud and theft, or simply errors. Public companies already know this as they are required to conduct an annual internal audit each year to ensure compliance with NYSE listing standards. Even that, we are learning, is not a fool-proof method. Many private companies, though, do not conduct internal audits, often citing cost and the idea that “if something is amiss, we will know about it.”
Well, Macy’s has just proven that adage is incorrect. Can you be sure it is correct for your organization? If you don’t conduct regular internal audits, you may be out of business before you find out.
Influential CPOs
The inability to get materials and products in the immediate aftermath of COVID-19 thrust the spotlight on supply chain. Chief procurement officers were on the front lines. But, while pressure initially built on these professionals to figure out ways to get products and materials, they may have emerged on the other side with more influence and power within their organizations. Research released recently by WNS Procurement amp; WBR Insights found that 91% of organizations report CPOs have more influence on C-suite decision-making, even though nearly half say they struggle with internal influence. They survey also found that AI in the procurement process is now being used by 49% and 87% of CPOs have implemented supplier incentive programs to drive innovation and improve ESG outcomes. CPOs have arrived on the C-suite stage and they are clearly getting the resources and influence needed to get the job done.
Tariff update
Here is your weekly tariff update. Yes, it seems like tariffs are something I could write about each week. Maybe we can make this a sponsored section? Tariffs This Week. I digress. Anyway, last week I wrote about recommendations that would pull China’s Permanent Normal Trade Relations status as Trump ramps up his tariff push (You can read about that here). This past week, Trump went a step further, proposing a 25% tariff on both Mexico- and Canada-imported goods until the countries cracked down on illegal immigrants entering the U.S. and the flow of drugs crossing the borders. This could just be a negotiating tactic, but if it isn’t, here’s what products could be at risk for potential price increases (government data collected by University of Michigan’s Jason Miller): 45% of U.S. imports of auto parts; 70% of imported crude; 30% of imports of electronics/computers; 91% of heavy trucks and chassis; 33% of iron/steel/alloy. The threat may turn out to be empty when all is said and done, but there is very real GDP at risk.
What I read this week
With customer satisfaction expected to play a significant role in decision-making, organizations are looking for the keys to unlocking success. … Joe McManus, vp of sales, SMB at K?rber Supply Chain Software, says that warehouse gamification is a key to employee engagement and retention. … A new DHL survey finds businesses are optimistic about the 2024 holiday season. … North Carolina ranks as the top state for manufacturing, edging neighbor South Carolina, according to an analysis by Site Selection Group. … Schneider National is acquiring Cowan Systems for $390 million. … A private equity company has acquired a majority stake in LTL carrier Roadrunner. … New Jersey Gov. Phil Murphy says New York City’s congestion pricing plan is unfair of New Jersey commuters.
Thank you for reading, Brian