Salespeople at Sara Lee Corp. and ConAgra Foods Inc. gave erroneous information to the auditors for U.S. Foodservice Inc. about the amount of rebate money that was owed to the Columbia company, officials at the two packaged-food producers said today.
In both cases, salesmen signed confirmation letters that inflated the amount of money owed to U.S. Foodservice, which is under federal investigation by the Securities and Exchange Commission and the office of Manhattan U.S. Attorney Jim Comey. Royal Ahold NV, the Dutch parent of both U.S. Foodservice and Giant Food, announced Feb. 24 that it had overstated revenue by at least $500 million in 2001 and 2002.
A key prong of the investigation has been whether U.S. Foodservice officials colluded with sales representatives at the company's suppliers to inflate the amount of promotional rebates that Ahold could book. Investigators have seen letters from the company's now-suspended chief marketing officer, Mark P. Kaiser, in which he allegedly says that the suppliers do not have to pay as much in rebates as they have officially promised. Kaiser's attorney has declined to comment on the investigation.
Sara Lee said in a statement that three salespeople confirmed rebate amounts to the auditing firm of Deloitte & Touche LLP that were significantly higher than the balances recorded in Sara Lee's own accounting system.
"While this is a serious matter, we want to emphasize that Sara Lee is not the focus of this investigation, and this discovery in no way affects our financial results. Sara Lee's accounting for our business with U.S. Foodservice is both accurate and appropriate," said C. Steven McMillan, chairman, president and chief executive of Sara Lee. "We will continue to cooperate fully with the SEC's investigation."
ConAgra spokesman Chris Kircher said that two sales representatives signed confirmation letters with inflated rebate numbers, but he added that the same employees also told ConAgra's own accounting department of their actions and the finance officials immediately flagged the confirmation letters as inaccurate. "Our process worked," Kircher said. The two employees are cooperating with the investigation.
Sources familiar with the investigation said that the inflated numbers at ConAgra and Sara Lee account for only a small portion of the $500 million. At least five other major U.S. Foodservice suppliers -- Hormel Foods Corp., H.J. Heinz Co., Tyson Foods Inc., General Mills Inc. and Kraft Foods Inc. -- have said publicly that they have been contacted by U.S. authorities in connection with the investigation.
A Hormel Foods spokeswoman said that an internal investigation found no evidence that salespeople had falsely confirmed rebate amounts. "We have all the documentation in hand and there were no surprises," said the spokeswoman, Julie Craven. "We are very centralized. It really would not be possible for an individual salesperson to do that sort of thing."
Spokesmen for General Mills and Tyson Foods said their companies are still in the process of gathering information and would not comment further. Spokesmen for the other companies did not return phone calls.
Sources familiar with what authorities are doing said that quite a few other U.S. Foodservice suppliers, big and small, are also being contacted by investigators.