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The New York Times had a long 3,000-word piece over the weekend about the financial travails of the Archway & Mother’s Cookie Company, which wasn't just forced into bankruptcy last year and had most if its assets sold off, but now is embroiled in an accounting scandal and a “multitude of lawsuits” that “have been filed in connection with Archway’s collapse, including suits brought by former employees as well as independent distributors.”

It is a fascinating story, and one worth reading. The gist of it seems to be that Archway is accused of having lost its bearings when private equity deals done during boom times led to the company being operated not for the customers who bought the products, but rather as a purely financial investment that had to meet certain numbers. When the results fell short of what was being demanded, some people say, results were fabricated so that loans and credit lines would not be withdrawn.

“As accounting scandals go, Archway is no Enron,” the Times writes. “Not in the size of the possible accounting fraud itself — sales were probably overstated by a few million dollars — or in its sophistication or ingenuity. Yet what court documents filed in Delaware describe as a fairly simplistic fraud went on for months, seemingly missed by the company’s lenders as well as its savvy, private-equity stewards.”

KC's View:
The piece that really stuck out to me in this story was the accusation by some that one of the company’s worst crimes was to change recipes and ingredients to cut down on costs…which, if it happened, seems like such an accountant-driven thing to do. (Not that I’m picking on all accountants here. I’m not. But let’s face it, skimping on quality to make the numbers isn’t the kind of decision usually made on the marketing or creative side of a business.)

Do this kind of stuff, and you alienate your customer. And then it almost doesn’t matter how big your shovel is, or how much money you’re willing and able to throw at a problem. You’ll never dig yourself out of the hole you’re in.