This story, written in depth in The Nation, set off an immediate alarm bell, based on my newspaper editorial background.
As I started reading, remembered a few years back, when WallyWorld said it would stop prosecuting shoplifting of under $50 value. The alarm is going off, saying, hmm, could this be related, since the allegations are about faking shrinkage levels?
Sylvester Johnson was fired by WallyWorld in 2009, after allegedly giving orders to 11 Supercenters he oversaw to manipulate inventory counts.
First, Johnson, who is black, is claiming discrimination in his firing.
Second, and even bigger (not that the first isn't big enough), he's saying it was WallyWorld doing the manipulation.
“We're talking about hiding tens or hundreds of millions of dollars in losses here—inflating the profits of a store, a district, a region, a division and ultimately the entire company,” Johnson told The Nation. In theory, such a practice could have artificially inflated the company’s profit margins and stock price, amounting to a form of federal securities fraud.
This wouldn't surprise me one bit.
Remember, this is the same WallyWorld that, as reported just last December by the New York Times, engaged in massive bribery in Mexico.
As that story noted:
The Times’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.So, there's precedent for believing WallyWorld is criminally corrupt.
Here's the nut graf of Johnson's allegations, from The Nation's story:
In June of 2008, a company executive named David Carmon took over as Walmart’s Regional Vice President for North and South Carolina. Johnson claims that, at the time, some stores in his district were losing about a million dollars in shrinkage annually. Carmon instructed him to cut his stores’ shrinkage rates in half—a target that Johnson felt was impossible to hit without resorting to unethical and illegal accounting practices. According to Johnson, Carmon warned of repercussions if Johnson’s shrinkage rate did not fall. “He threatened everybody that if you didn’t get your shrink down, you were going to be terminated,” said Johnson in a court deposition. Speaking to The Nation, Johnson said that Carmon used “tactics of fear and intimidation, and everyone looked the other way.”So, let's say he did start doing something unethical, Johnson, that is. But, somebody started complaining, WallyWorld worried about it leaking outside of store boundaries, and made him the fal guy. All possible.
Here's some analysis, also from the story:
After reviewing the available documents, Peter Bell, a certified public accountant in Charlotte, North Carolina, and Johnson’s expert witness, stated that “the documents that were produced to me lead me to the conclusion that Walmart may be manipulating its accounting records—the evidence of which, if true, would necessarily mean that Walmart is engaging in a form of accounting fraud."And, here's why it's a larger legal issue, if it's true:
“These overages appear to be excessive,” wrote Bell in an affidavit filed in the case. “The overages are not explained and appear not to have been investigated in any way. Indeed, left unexamined or unadjusted, these excessive overages distort the financial reporting of these stores such that net profit is artificially inflated, and accounting fraud is strongly suggested.”
Such practices are illegal because a company’s inflated profit margin misleads investors, according to Robert Weisberg, a professor at Stanford Law. “If a publicly traded company issues any kind of official statement that is misleading to the marketplace and the assets of the company are distorted or inflated—maybe something involving inventory—that’s securities fraud.”Now, per other financial experts in the story, theoretically, it would be hard to do this for a long time. And, since Walmart's been sued over minority promotion issues in the past, it could be an easy lawsuit target by a disgruntled, fired employee, right?
On the other hand, it was about 2008 or 2009 it announced its plan to not prosecute minor shoplifters any more. And, if district managers pencil-whipped exact dollar amounts of shoplifting case estimates, that would make this easier to pull off, I think.