http://weeklymba.blogspot.com/2010/01/kmart-accounting-scandal-html
This is the blog that I have chosen for this entry.
http://www.marketwatch.com/story/sec-charges-8-in-24-million-kmart-fraud-from-2001
So far, writing about these scandals have a similar outline of companies fined large amounts of money. They normally involve CFO's, CEO's, financial controllers and other executives. The K-Mart scandal involved eight vendors charged with bloating profits in the 2001 fiscal year.
K-Mart reported increase in the profit margins by reducing the cost of goods for five vendors. The vendors were Pepsi Cola Pepsi Cola division, Eastman Kodak, Coca-Cola, and Pepsi Cola Frito Lay division. Major retail companies contract out space for big name vendors. For example, Coca-Cola's investors, presidents, and top executive present a contract to the retail company such as Wal-Mart for an allotted shelf space to sell the their product. Wal-Mart's top executives review the cost and either agree on the proposed amount of or negotiate on settle on a different price. This price allows vendors to keep the shelves full for the customer and if the contract is broken, then removal of the product comes from the retail company until a new contract is agreed.
In 2001, K-Mart reported they made $219 million which breaks down to 48 cents a share This made them look good even if it was one penny ahead of Wall Street's expectation. However, K-Mart became dependent on the vendor allowances to carry the company from one fiscal year to another. Eventually, there scheme caught up with them and K-Mart filed bankruptcy on January 22, 2002. At that time, this was known as the largest retail bankruptcy ever recorded.
K-Mart's executives, John P. Orr, terminated in February 2001, and Michael K. Frank, terminated in May 2002, did not have to pay fines prior to there terminations. Abbood, on the other hand, left voluntarily and paid $50,000 in civil fines.
Former vice president and general manager of Eastman Kodak, Darrell Edquist, paid a $55,000 civil fine but SEC did not report any fines from Edquist. Former National sales director, David C. Kirkpatrick, of Coca-Cola paid no fines either through civil or to the SEC. Neither did David N. Bixler, a former national sales director of PepsiCo's
Pepsi-Cola division did not pay fines civilly or to the SEC. Randall M. Stone, a former national account manager for PepsiCo's Frito-Lay
division did pay $30,000 in civil fines Thomas L. Taylor, a former director of sales for PepsiCo's
Frito-Lay division paid 25,000 civil fine.
Eastman Kodak, Pepsi Cola and Coca Cola did cooperate through the investigation even though Kirkpatrick was fired.
Accounting is a trust profession. People put his or her trust in an accountant to ensure that the money invested will grow a profit for a company or for them. What is discouraging about crooked accountants, seems to fall on all accountants everywhere. Trustworthy accountants, in the public mind, are hard to find.
