Macy's is going through a serious accounting debacle after learning that a single employee purposefully falsified accounting documents to conceal between $132 million and $154 million in shipping costs.
These falsifications happened between the fourth quarter of 2021 and November 2024 and Macy's has now had to postpone its originally planned fourth-quarter earnings release. The earnings announcement has now been rescheduled till December 11 to allow Macy's to fully investigate the financial irregularities.
Macy's has been audited by KPMG since 1998 which gave their finances a green-light, earlier this year. In a statement, KPMG who had audited Macy's and found no discrepancies, had written:
“The consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended February 3, 2024, in conformity with U.S. generally accepted accounting principles,”
Now, this new revelation has resulted in a greater than 2% decline in Macy's stock with people questioning the efficacy of Macy's auditors KPMG. Neil Saunders, a retail analyst and managing director at GlobalData Retail, told CNN:
"The accounting problem raises the question as to the competence of the company’s auditors... Such things create more nervousness for investors who are already concerned about the company’s performance.”
As reported by Yahoo News, While some people are questioning the auditors, an ex-KPMG partner, Jerry Maginnis questioned Macy's internal controls by saying:
"Even in a situation where someone intentionally introduced errors to a company's books, Your system of internal control should have caught it."
Maginnis continued with:
"Somebody else should have been reviewing and catching it, and so this was a breakdown in internal control as well as bad accounting,"
How did the former Macy's employee allegedly embezzle funds?
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The former Macy's employee is accused of hiding up to $154 million in delivery expenses over nearly three years. The employee, who was in charge of accounting for small package deliveries, purposely made false entries to hide the expenses, which went unnoticed until Macy’s discovered the issue in November 2024.
Macy's found the problem while preparing its third-quarter financial reports, earlier this November and quickly launched an investigation. Despite the missing expenses, the company said it didn't affect their cash flow or payments to vendors. The employee is no longer with Macy's, and the company has confirmed that no other workers were involved. Macy’s is delaying its earnings report while it completes the investigation, with the results expected to be released by December 11.
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