Tandy Leather Factory and its former CEO have been charged with using a faulty inventory tracking system, resulting in inaccurate information being included in its financial statements.
According to the U.S. Securities and Exchange Commission, the limitations of the tracking system at the world’s largest specialty retailer of leather goods distorted Tandy’s calculations for inventory, net income, and gross profit for each quarterly and annual reporting period going back to at least 2016.
In June, Tandy restated financial statements for fiscal 2017 and 2018, interim periods for 2018, and the first quarter of 2019 due to the erroneous reporting.
To settle the SEC’s allegations, Tandy and former CEO Shannon Greene agreed to pay fines of $200,000 and $25,000, respectively. Greene, 55, served as CFO for 16 years before being promoted to chief executive in February 2016.
“Tandy’s inventory tracking system and related controls were critical to both its business and the information it provided investors, yet they were wholly insufficient,” David Peavler, director of the SEC’s Fort Worth Regional Office, said in a news release. “Properly functioning disclosure controls and [internal control over financial reporting] are critical to reliable financial reporting, and we will hold companies and their responsible executives accountable for serious control failures like this.”
The SEC said the key problem with the tracking system, which dated back to 2000, was that it could only hold one cost per stock-keeping unit at a time and did not retain any historical information.
“As a result, when Tandy personnel input a new cost following a purchase for a given SKU, the updated cost applied retroactively to all pre-existing products associated with that SKU,” the commission said in an administrative order.
Tandy used a first-in, first-out (FIFO) inventory accounting methodology but because the historical cost of SKUs was always updating to the most recent cost, inventory could not be valued at FIFO and the “inaccurate inventory values flowed from the inventory system to Tandy’s financial statements,” the SEC said.
Greene left the company in October 2018 and is now CFO of the Stewart Organization, a copier distributor in Dallas, according to her LinkedIn profile.