OfficeMax Says SEC to Probe Its Accounting Practices
OfficeMax Inc., the No. 3 office supplies retailer, said Tuesday that the Securities and Exchange Commission issued a formal order of investigation after the company revealed it had fabricated $3.3 million in rebates billed to suppliers.
The SEC inquiry follows the company’s own investigation into its accounting for supplier income, Itasca, Ill.-based OfficeMax said in a statement. That internal probe led to the resignation of former Chief Executive Christopher Milliken in February and the termination of six workers.
OfficeMax’s investigation began in December after a supplier complained that some employees acted “inappropriately” in requesting promotional payments, the company said.
OfficeMax is the latest in a series of retailers whose supplier practices have been investigated. Saks Inc., which owns Saks Fifth Avenue, is being probed by the SEC for the improper collection of $20 million in vendor markdowns.
Investigations into supplier payments have increased as the SEC has stepped up enforcement and begun implementing new rules drawn up by the Financial Accounting Standards Board, said Richard Hastings, an analyst at New York-based Bernard Sands.
“The scope and scale of the problem is well defined and doesn’t represent a serious breakdown in control,” Hastings said of OfficeMax. “The company’s taking the steps in the right direction.”
OfficeMax on May 3 revised its first-quarter results from a profit to a $5.3-million loss after setting aside money to pay for legal matters. The company has said in amended regulatory filings that it overstated its cumulative operating income in the first three fiscal quarters of 2004 by $4.3 million.
“We reached our outcome and have been treating this as concluded,” OfficeMax spokesman Bill Bonner said.
In a filing last month, OfficeMax said it reviewed all of its outstanding supplier claims and converted a “substantial portion” to standard agreements that are based on purchase amounts and not special promotions and other marketing events. The company is also improving accounting training on supplier practices.
The SEC doesn’t confirm or deny investigations, spokesman John Heine said.
Shares of OfficeMax fell 3 cents to $30.10 on the New York Stock Exchange.
