Ace finds $154 million shortfall
In a letter posted today on its member intranet, Ace Hardware announced that it overstated the company’s gross profit and net income going back several years, resulting in a $154 million discrepancy. The error could result “in a significant adjustment to the company’s financials,” the letter said, and eliminate the co-op’s profits and members’ patronage dividends for fiscal 2007.
As a result of the accounting error, CEO Ray Griffith said the co-op would not be pursuing a change in Ace's corporate structure. The company had recently been in discussions to convert to a traditional for-profit corporation.
Ace staff uncovered the problem in mid-August while it was reviewing financial statements to bring them into compliance with Securities and Exchange Commission standards. A difference of $154 million was found between the general ledger and the perpetual inventory levels at Dec. 31, 2006.
After informing the board of directors, the organization then brought in Protiviti, an independent consulting firm, to delve into the exact cause and extent of the problems, which cover the 2002 to 2006 time period “and probably back before that.” The analysis is still underway and could take months to complete, the letter said.
Griffith stressed that there was no evidence of theft or missing money. He apologized to the members and said that processes have been put in place to prevent a future occurrence.
Acall to Ace Hardware from HCN seeking further comment was not immediately returned.