Paltheos
Member
Story that broke yesterday that I dug into a little bit just for the heck of it (AP news link). Figured I'd share my thoughts.
Macy's alleges a single employee, no longer with the company, made deliberately incorrect accrual entries to account for delivery expenses over a three year period. As a result $154 million in expenses have not been reported. This is not an insignificant component of Macy's operations. I looked over Macy's 10-k filings for FY 2022 and FY 2023 (links to SEC archive). Their net income for the past three years, from oldest to most recent, has been $1.43B, $1.18B, and $105M (fyi, the precipitous drop in FY2023 is due to a $1.02B impairment/restructuring loss).
One theory that I'd seen floating around is that Macy's might be prepaying these expenses and recording correctly ala a debit to prepaid expenses and credit to cash/payables/whatever, but then never crediting the prepaid accounts when expenses were actually incurred. For those not fluent in accounting, prepaid expenses are reported on the balance sheet, not the income statement, and so would not impact a company's reported net income. I looked at the last three years' prepaids and that doesn't seem immediately obvious. Prepaids at years-end have been $366M, $422M, and $401M, and the relative proportions for their other accounts don't look that different from a glance. So... I don't know, but it was a fun rabbit hole for the morning.
Also, general rumbling around this story has been 'there's no way this is on one employee' and Macy's is scapegoating somebody. My armchair opinion is to agree if any of this involved manual entries just because there are usually controls in place for high-dollar manual adjustments to require approval. Or maybe their controls really suck and somebody was able to hide expenses somewhere without tripping any red flags, but I doubt it was any line accountant or at least any staff acting alone. The only people who benefit from lower expenses are executives (and shareholders).
Macy's alleges a single employee, no longer with the company, made deliberately incorrect accrual entries to account for delivery expenses over a three year period. As a result $154 million in expenses have not been reported. This is not an insignificant component of Macy's operations. I looked over Macy's 10-k filings for FY 2022 and FY 2023 (links to SEC archive). Their net income for the past three years, from oldest to most recent, has been $1.43B, $1.18B, and $105M (fyi, the precipitous drop in FY2023 is due to a $1.02B impairment/restructuring loss).
One theory that I'd seen floating around is that Macy's might be prepaying these expenses and recording correctly ala a debit to prepaid expenses and credit to cash/payables/whatever, but then never crediting the prepaid accounts when expenses were actually incurred. For those not fluent in accounting, prepaid expenses are reported on the balance sheet, not the income statement, and so would not impact a company's reported net income. I looked at the last three years' prepaids and that doesn't seem immediately obvious. Prepaids at years-end have been $366M, $422M, and $401M, and the relative proportions for their other accounts don't look that different from a glance. So... I don't know, but it was a fun rabbit hole for the morning.
Also, general rumbling around this story has been 'there's no way this is on one employee' and Macy's is scapegoating somebody. My armchair opinion is to agree if any of this involved manual entries just because there are usually controls in place for high-dollar manual adjustments to require approval. Or maybe their controls really suck and somebody was able to hide expenses somewhere without tripping any red flags, but I doubt it was any line accountant or at least any staff acting alone. The only people who benefit from lower expenses are executives (and shareholders).
