ConAgra Foods Inc. said yesterday that it had received five requests to confirm inaccurate payments to U.S. Foodservice, weeks before the Columbia company and its parent, Royal Ahold NV, came under fire for accounting irregularities.
ConAgra, the nation's third-largest food manufacturer and a key supplier to U.S. Foodservice, said the food distributor sent it five letters between the end of January and the middle of February asking the supplier to confirm inflated estimates for what it owed in rebates. Suppliers such as ConAgra typically pay distributors rebates in exchange for buying high volumes of products.
ConAgra said that normally such requests to confirm rebate amounts would be sent directly to the company's accounting department. But in those five instances, U.S. Foodservice sent the requests to sales people around the country, two of whom approved the amounts before notifying ConAgra's accountants.
ConAgra said its accountants then disputed the amounts, both with U.S. Foodservice and its auditors, Deloitte & Touche.
Such rebates, or "vendor allowances" are at the heart of the investigations of U.S. Foodservice by the Securities and Exchange Commission and the Justice Department.
ConAgra is just one supplier to U.S. Foodservice - which distributes food to restaurants, schools and hospitals - that has been asked by the SEC or the U.S. Attorney's Office, or both, to turn over information pertaining to the investigation.
Kraft Foods Inc, H.J. Heinz Co. and General Mills Inc. and Sara Lee Corp. said they, too, have been contacted by investigators and asked for documents.
ConAgra yesterday said that two of its salespeople unwittingly approved the inflated estimates.
"In two of the five cases, we had a situation where a sales person signed it and returned it, but they also did the right thing and let the accounting people know," said Chris Kircher, a ConAgra spokesman. "One [rebate amount] was off by $6 million, and that got our attention."
A U.S. Foodservice source said yesterday that such confirmation requests are supposed to be sent by the company's auditors. In the case of the requests to ConAgra, "there were inaccurate [confirmations] that were coming from marketing and purchasing personnel."
Any complaints from ConAgra likely went to the same department that sent the letters, the source said.
ConAgra said it contacted U.S. Foodservice and Deloitte & Touche numerous times between Feb. 3 and Feb. 10 to say that the confirmations were wrong. A revised estimated was resent by Deloitte & Touche on Feb. 10, Kircher said, "but it was still wrong."
"Our people pressed Deloitte & Touche for two full weeks ... then at the end of February we read about this thing in the newspaper," Kircher said.
Royal Ahold announced Feb. 24 that accounting irregularities had caused it to overstate profit by at least $500 million during the past two years.
The inaccurate confirmation requests sent to ConAgra were first reported yesterday by the The Wall Street Journal .
U.S. Foodservice would not comment on the requests sent to ConAgra, or say whether any "inflated" requests had been sent to other vendors. Deloitte & Touche spokeswoman Deborah Harrington said she could not comment.
In a statement, U.S. Foodservice said: "It appears that a small number of trusted employees worked outside our established accounting procedures and betrayed the company. Unfortunately, controls cannot prevent people from breaking the rules; they can only catch the violators."
The distributor has suspended two employees Mark Kaiser, chief marketing officer, and Tim Lee, a purchasing executive, pending the outcome of the investigation.