3 suspended by Sara Lee over false data to U.S. Food

Auditors given inaccurate vendor discount numbers

April 08, 2003|By Paul Adams | Paul Adams,SUN STAFF

Sara Lee Corp. suspended three employees who provided auditors for Columbia-based U.S. Foodservice with inaccurate information about the size of its vendor discounts, which may have contributed to an accounting scandal that caused the Maryland company's Dutch parent to overstate earnings by at least $500 million.

Sara Lee, widely known for its baked goods, said yesterday that the employees are cooperating with the Securities and Exchange Commission, which is investigating whether U.S. Foodservice executives improperly accounted for rebates it received from food manufacturers. Such rebates are typically paid in exchange for large purchases.

Deloitte & Touche, auditors for U.S. Foodservice's parent, Royal Ahold NV, contacted Sara Lee and other food manufacturers to verify the size of vendor rebates the companies owed. In the course of those checks, the three suspended salespeople confirmed inaccurate amounts, which helped U.S. Foodservice inflate its revenue.

"While this is a serious matter, we want to emphasize that Sara Lee is not the focus of this investigation, and this discovery in no way affects our financial results," C. Steven McMillan, chairman, president and chief executive of Sara Lee, said in a statement.

The news didn't hurt Sara Lee's stock, which climbed 42 cents to $19.74 per share yesterday.

The company did not discover the problem until contacted by the SEC. The three workers, who were not identified, had no financial incentive to help U.S. Foodservice executives deceive their auditors, said Julie Ketay, a spokeswoman for Sara Lee. And the company's own accounting for the rebates was accurate, Ketay said.

"We don't know any motives at this point," she said.

Analysts said the SEC investigation is not likely to have any effect on Sara Lee, which is one of many food manufacturers that is being questioned as part of the U.S. Foodservice scandal. The Columbia company supplies food to large institutional buyers, such as hospitals, prisons and restaurant chains.

"I think it's a nonevent [for Sara Lee]," said Michael Kress, an analyst with Pershing LLC. "I don't think there was any benefit to [Sara Lee] by helping these people cheat and lie."

Most likely it was a case of some overzealous employees trying to placate a major customer, said Banc of America analyst William Leach.

"They're not investigating the accounting of [Sara Lee]," he said.

How U.S. Foodservice accounted for vendor allowances is at the heart of investigations by the SEC and the Justice Department. Royal Ahold said in February that it had overstated 2001 and 2002 earnings by at least $500 million, sending the company's stock plunging and resulting in the ouster of its two top executives. In addition, two employees at U.S. Foodservice have been suspended while the company investigates their involvement in the scandal.

In addition to Sara Lee, food giant ConAgra Foods Inc. confirmed recently that it, too, had been contacted by Ahold's auditors and asked to verify rebate amounts that turned out to be inaccurate.

ConAgra said it refused each time.

U.S. Foodservice declined to comment directly on the revelations by Sara Lee.

In a statement, the company said the accounting inaccuracies were the doing of a few trusted employees who broke the rules.

"To the extent that inaccurate or falsified confirmations were sent to suppliers, we can only reiterate that it appears that a small number of trusted employees worked outside our established accounting procedures and betrayed the company," the company said.

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