The indicated person, who was responsible for the delivery costs of small packages, is no longer an employee. According to Macy’s, the employee “intentionally made incorrect accounting entries,” concealing between $132 million and $154 million in delivery costs between the fourth quarter of 2021 and the fiscal quarter ended Nov. 2. During the same period, Macy’s accounting statements recognized approximately $4.36 billion in delivery costs – suggesting that somewhere between 3% and 3.5% of those costs were fictitious.

Macy’s, a Fortune 500 company, said there is “no evidence that the accounting errors” had any impact on cash management operations or vendor payments. The company promotes a “culture of ethical behavior,” CEO Tony Spring said in a statement. Macy’s is working diligently to complete the investigation and ensure “this matter is handled appropriately,” Spring said.

How did the employee do that?

Macy’s statement did not explain the employee’s motives for the fraudulent submissions, and the company declined to comment further. To get a better idea of ​​what might be going on, I asked Adriana Carpenter, CFO of software company Emburse, for her assessment of the situation.

Carpenter noted that it is significant that the income statements in the accounting statements were affected, while the cash flows were not.

“This leads me to hypothesize that the accountant changed the coding of these supply transactions to write the payments to a balance sheet account (rather than a profit and loss account),” she explained. “As a result, the expenses were never reported even though the payments were properly recorded as cash outflows (payments).

The coding change could have occurred at the time the transaction took place, Carpenter explained. Or it could have been initially recorded on the income statement, and then a second journal entry was made to reverse the expense and move it to the balance sheet.

She recommends that CFOs adopt end-to-end expense management solutions that capture all non-payroll related expenses.

“It honestly happens all the time that someone messes up accounting numbers and hides costs,” Jo-Ellen Pozner, associate professor of management at Santa Clara University’s Leavey School of Business, told me.

So what’s Pozner’s take on why the Macy’s employee engaged in what appears to be blatant fraud? It may be that the pay or bonus for the work was linked to a specific number in the accounting statements.

“If the employee’s incentives were tied to cost reduction or profit increases, then he or she might have an incentive to hide costs,” Pozner said. “Sometimes we create stimuli that are maladaptive, and that’s why these kinds of things happen.”

But Pozner noted that everyone from “the most basic financial manager” to the company’s accountants, to the C-suite and the board of directors, can be held responsible for this blemish. “It’s almost always the case that one or two people take the hit,” she said. “Fraud is always a bit destabilizing,” says Pozner.

Problem seems ‘contains’

The news of the accounting tricks comes at a time of turmoil for the company. In July, Macy’s announced that its board of directors had voted unanimously to end talks with private investors trying to acquire the company: Arkhouse Management Co. LP and Brigade Capital Management, LP.

Meanwhile, the company has embarked on a three-part strategy, one of which is strengthening the Macy’s nameplate, CFO and COO Adrian Mitchell recently told me. “For a number of years we’ve seen sales decline over time, but we decided to take what I would call some bold moves,” Mitchell said.

In February, the company announced it would close 150 underproductive stores over the next three years following fourth-quarter 2023 losses and declining sales. Macy’s is targeting 350 stores, which the company believes have growth opportunities. From those stores, the company chose fifty to experiment with to see what works.

In some preliminary third-quarter results, Macy’s noted that net sales fell 2.4% year over year to $4.74 billion. David Swartz, senior equity analyst at Morningstar, wrote in a note Monday that there were “positive signs” in the report, including same-store sales increases of 1.9% at the “First 50” Macy’s stores and more than 3% across stores of the company. brands Bloomingdale’s and Bluemercury. “We view these results as supportive of the ‘A Bold New Chapter’ plan,” he wrote.

Swartz’s thoughts on the accounting dilemma: “While disappointing, the problem appears to be under control and the cost differences are immaterial given that Macy’s annual operating costs exceed $8 billion.” Macy’s has been a struggling company for years, Swartz told me. “Investors and analysts will focus on the progress of the strategic plan, not on this controversy,” he said.

Sheryl Estrada
[email protected]

The following sections of CFO Daily were compiled by Greg McKenna.

Leader board

Jonathan Douyard was appointed EVP, treasurer and CFO of Gentherm (Nasdaq: THRM), which makes automotive products such as heated seats and steering wheels, effective January 1. He will succeed Matteo Anversa, who left the company in September to become Logitech’s CFO. Douyard joins from The Shyft Group, a specialty vehicle manufacturer, where he served as CFO. He held the same position at Fluke Corporation, an industrial technology company, after fifteen years in senior financial positions at United Technologies and General Electric.

Kevin Krumm was appointed CFO of Bow (Nasdaq: FLEX), a manufacturing services company, effective January 6. He will succeed interim CFO Jaime Martinez, who will remain with the company. Krumm joins from API Group Corporation, a safety and specialty services company, where he served as CFO. He previously spent 15 years at water purification and hygiene company Ecolab, most recently as corporate treasurer and SVP of global financial shared services

Big deal

Employee welfare in the US has reached a record low, according to Gallup’s latest life assessment index of American workers. Only 50% of American workers say they are doing well in their lifetime, the lowest figure since Gallup started measuring in 2009. The index peaked at 61% between 2016 and 2017, but began to decline in 2020, despite a brief rebound in January 2021 when COVID-19 vaccinations became available.

Fifty-one percent of employees say they experience stress for a large part of their working day, while 40% also often worry. Only four in ten feel respected at work, and only 24% believe their employer cares about their well-being.

According to Gallup, this decline is happening employee satisfaction can weigh on performance. Employees who say they are doing well miss 53% fewer work days and are 32% less likely to be looking for or actively looking for a new job.

Go deeper

Tether was an outlaw for years. Now the $132 billion stablecoin has a key ally in Trump’s Cabinetis a new one report by Fortune‘S Leo Schwartz. Tether is one of the most powerful companies in crypto, thanks to its ubiquitous digital token pegged to the US dollar, but the company has faced heavy criticism from US regulators. It could help that the choice of Donald Trump as Secretary of Commerce Cantor Fitzgerald CEO Howard Lutnick, is a self-proclaimed big fan and has a minority stake that is reportedly being passed on to his son.

Heard

“Bessent has said he views burdening American consumers through trade tariffs as a negotiating tool — essentially the position during Trump’s first term. Others in the Cabinet disagree, but investors will be happy that there is one voice calling for moderation in trade taxes.”

– Paul Donovan, chief economist at UBS Global Wealth Management, wrote in a note on the announcement of Scott Bessent as Donald Trump’s nominee for Treasury Secretary: Fortune reported.