Regulators and accounting specialists are described as "grappling" with the large--and "largely undisclosed"--nature of vendor rebates. The problems at U.S. Foodservice (USF), the Columbia, MD, based broadliner subsidiary of Royal Ahold, Zaandam, the Netherlands, are cited. Last week, Ahold said its investigation had concluded that it had overstated earnings by $880 million between April 2000 and December 2002, as a consequence of improper accounting of such supplier discounts. These findings culminated in today's announcement of the resignation of USF CEO Jim Miller. (See accompanying Web posting.)
The potential for abuse is rooted in the "sheer volume and diversity" of such promotions, vague accounting rules and difficulties faced by outside auditors in verifying the payments, says the Journal.
Regulators examining Ahold's accounting are planning to bring rebate-related enforcement actions in coming months, according to sources cited by the major financial newspaper. Regulators also are reportedly concerned about the degree to which the complexities allow for "cooperation by a company's suppliers to misrepresent the value of incentives received by a company," or, in other words, "false confirms."