business news in context, analysis with attitude

Sara Lee Corp. said Monday that three of its salespeople approved inaccurate rebate amounts to Royal Ahold’s US Foodservice Unit, and that these three staffers have been removed from their sales responsibilities, though they remain with the company.

This is the second major revelation of a manufacturer confirming inflated and incorrect rebate amounts. ConAgra has confirmed the same sort of occurrence by some of its salespeople.

Sara Lee will turn over the results of its internal investigation to the US Securities and Exchange Commission (SEC), which is investigating Ahold for having overstated its profits by a half-billion dollars for two years. The SEC is looking into alleged improper accounting related to vendor rebates.

When Sara Lee’s employees provided unauthorized confirmation of rebates and balances due from the company to US Foodservice, they allowed the Ahold division to artificially inflate its earnings.

In a statement, Sara Lee President and CEO Steven McMillan said the company is not a focus of the SEC investigation. “Sara Lee’s accounting for our business with U.S. Foodservice is both accurate and appropriate,” he said.

The SEC and the US Department of Justice reportedly have widened their investigations into the Ahold and US Foodservice division to request information from at least six major food manufacturers -- Kraft Foods, General Mills, and HJ Heinz, Sara Lee, ConAgra, and Tyson.

US Foodservice executives reportedly contacted sales staffers instead of accounting personnel to confirm overstated rebates. ConAgra Foods accountants identified the problem earlier this year and retracted the payments.

Sources familiar with the investigation told The Washington Post that the inflated numbers at ConAgra and Sara Lee are just a small portion of the $500 million.
KC's View:
Someone from the manufacturer community called us the other day to caution us not to make it sound like manufacturers had done anything wrong. (That was then, this is now, we’d suggest.)

The person then asked, “Do you think that manufacturers will end up being dirty in this?” Our response, cynical as it might sound: Everyone is dirty.

Not because they meant to be dirty or unethical. It’s just that the system is built around some fraudulent premises, and misdeeds sometimes are the ones that get rewarded.