Management Accounting

SEC Eyes Home Depot Vendor Charges

The company allegedly inflated earnings by overbilling suppliers for payments earmarked to cover the cost of damaged merchandise, according to a pu...
Stephen TaubJanuary 12, 2006

The Securities and Exchange Commission has launched an informal probe into whether Home Depot Inc. used payments from suppliers to inflate its earnings, reported The New York Post.

The world’s largest home-improvement chain allegedly overbilled suppliers for payments earmarked to cover the cost of damaged merchandise — so-called return-to-vendor charges — according to the paper, citing current and former employees.

One former employee, Michael Davis, filed a whistle-blower complaint with the Department of Labor charging that he was wrongfully fired when he refused to participate in this practice, according to the Post. His lawyer, Mark Schwartz, told the paper that Davis’ case is scheduled to go to trial later this month. Home Depot spokesman Jerry Shields and SEC spokesman John Heine declined to comment.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

For example, reported the Post, Philips Lighting Co. provided a Home Depot store in Maryland with a $1,000 monthly credit to cover the cost of damaged light bulbs, according to the paper, citing Davis. The Post added that Philips agreed to accept the charge unconditionally if the amount did not exceed $1,000. Davis told the paper that he was instructed by his superiors to charge Philips slightly less than the $1,000 ceiling each month, even if the damages didn’t reach that level.

The Post also reported that Home Depot has installed a new computer system that makes it more difficult for store employees to manipulate return-to-vendor charges.

Home Depot is not the only retailer under investigation for its relationship with vendors, of course.

As we reported last year, the SEC and the U.S. Attorney’s Office for the Southern District of New York are investigating improper collections of vendor markdown allowances in one of Saks Fifth Avenue’s six merchandising divisions. The SEC is also looking at the adequacy of an 2002 Saks internal investigation as well as other accounting and disclosure issues.