Macy’s discovered an employee intentionally making accounting errors, which delayed the third quarterly earnings report. The company claimed an employee intentionally made accounting errors totaling $132 to $154 million. However, auditing experts said evidence suggests that it was a failure of internal accounting authorities.
As per experts, an error should have been caught much earlier if it was a single-employee intent. Macy’s now has to explain and deliver a report on how it lost control over accounting. Some analysts argue that Macy’s may have revealed too much information too soon, which will affect its market shares and investors’ confidence.
Uncovering the $132 Million Auditing Mystery at Macy’s
On November 25, Macy’s revealed that there would be a delay in its third quarter earning report release, as they had discovered an employee intentionally made an accounting error between $132 million and $154 million over three years.
Jerry Maginnis, former KPMG partner said, “Even if someone intentionally introduced errors to the company’s accountant books, they should have caught it.” In 2015, Maginnis retired from a finance firm and now serves as a member of the audit committees of several companies and executive in residence at Rowan University. He confirmed that Macy’s financial records were never under him, which had been audited by KPMG since 1988.
Maginnis also said, “Somebody else should have been reviewing and catching it, and so this was a breakdown in internal control as well as bad accounting.”
Macy’s Employee Fraud Scandal
Macy has fired an employee who was intentionally making accounting errors for the last three years. As per the company’s press release, an employee had the responsibility of small package delivery expense accounting. Macy’s reported spending $4.36 billion on small package delivery costs over three years, with the error accounting for less than 5% of that total. No money was spent improperly as claimed by the company.
The announcement of the audit error preceded the scheduled earnings report of Macy’s. The company confirmed that the next update will come on December 11. Now, KPMG, Macy’s auditor, is under real pressure as they have to show that it’s properly scrutinizing accounting practices and control.
Macy’s Stock Decline Following Delivery Expense Scandal
On November 25, Macy revealed an accounting error delaying the third-quarter earnings report. Following the news, Macy’s stock prices declined by 3.5%. Experts believe it was too early to reveal such crucial data publicly, which has adversely impacted the brand as well as investors’ confidence.
Macy’s auditing issues, which include intentional accounting errors by an employee, have raised serious concerns about internal controls and auditing practices. The company’s early reveal has affected investor confidence and stock prices, while questions remain about the effectiveness of oversight.
