Wesfarmers Investigation: Action Being Taken Against Target Employees
Wesfarmers has stated that action is being taken against Target employees following an investigation into supplier rebate arrangements, carried out after it was revealed that “the accounting treatment of a number of Target supplier arrangements negotiated in December 2015 required scrutiny”.
The investigation, undertaken by Wesfarmers with its external auditors Ernst & Young, “identified that the collective effect of agreed rebates of $18.1 million for past activity and subsequent product cost increases negotiated in December with 31 overseas suppliers did not meet the group’s accounting policies and operating standards”.
A number of supply arrangements amounting to less than $3 million were also found to not comply strictly with the group’s accounting policies.
“While these arrangements had no cash flow implications for the six months ended 31 December, they did support income of $21 million recognised in Target’s earnings for the period,” Wesfarmers stated.
“Adjusting for this in accordance with group policies, Target’s earnings before interest and tax would have been $53 million as compared to the $74 million reported. At a group level, the financial impact would not have been material, with earnings after tax assessed at $15 million or 1.1 per cent lower than reported and in line with the previous corresponding period.”
The arrangements would have had a negligible impact on the group’s and Target’s financial results for the full financial year to 30 June 2016, Wesfarmers stated, with any benefit recorded in the first half “substantially reversed over the second half of 2016 due to higher product costs”.
“Target is now working with suppliers to unwind the arrangements,” Wesfarmers stated.
Target managing director Stuart Machin last Friday announced his resignation from Wesfarmers with immediate effect.
Machin had stated that he was not aware of the accounting issues, however had accepted his share of the responsibility given his leadership role.
“Appropriate action is being taken against the Target employees who were found to be directly involved,” Wesfarmers has stated.
Wesfarmers managing director Richard Goyder stated that “there is no excuse” for the conduct.
“We set very clear direction and expectations at Wesfarmers crystallised in our code of conduct, and supported by detailed group policies, divisionally specific accounting policies, and regular staff training,” Goyder commented.
“We encourage and expect adherence to a strong culture of managing for long-term sustainable growth over short-term gain, which is regularly reinforced by the Wesfarmers board and which should have guided behaviour.”