SEC charged the company Friday with engaging in “various types of accounting misconduct, including recognizing unearned discounts from suppliers and maintaining false and misleading supplier contracts, which improperly reduced the company’s cost of goods sold and allegedly achieved ‘cost savings,’” the regulatory oversight agency said in a statement.
It alleged that these “accounting improprieties” included a total of $208m in improperly recognized cost savings from nearly 300 transactions between the last quarter of 2015 and the end of 2018, which resulted in Kraft reporting an inflated adjusted EBITDA. Kraft restated is financials in June 2019 to correct for these “improperly-recognized” cost savings.
“We have fully cooperated with the SEC throughout its investigation and took prompt and extensive remedial action and proactive steps to improve our internal policies, procedures and internal controls over financial reporting,” Kathy Krenger, global chief communications officer at The Kraft Heinz Company, said in a Sept. 3 statement.
Without admitting guilt, she added: “Kraft Heinz is much stronger today because of the actions we took and embedded into our company culture.”
'Pelleissone was presented with numerous warning signs...'
SEC also accused Kraft’s former chief operating officer Eduardo Pelleissone and former chief procurement officer Klaus Hofmann of missing warning signs and for failing to create and follow proper internal controls that would have caught and blocked the misconduct.
“Pelleissone was presented with numerous warning signs that expenses were being managed through manipulated agreements with Kraft’s suppliers, but rather than addressing these risks, he pressured the procurement division to deliver unrealistic savings targets,” SEC alleges in a statement.
Likewise, “Hofmann approved several improper supplier contracts used to further the misconduct despite numerous warning signs that procurement division employees were circumventing internal controls, and certified the accuracy and completeness of the procurement division’s financial statements when the misconduct was occurring,” SEC alleged.
Hofmann agreed to pay a $100,000 penalty and be barred from serving as an officer or director of a public company for five years, and Pelleissone agreed to pay a $300,000 fine and about $14,000 in disgorgement. Neither admitted guilt.
Kraft Heinz chief procurement officer: ‘Relationships with suppliers should not be purely transactional'
Type ‘Kraft Heinz procurement’ into Google and the search engine helpfully suggests ‘scandal,’ ‘misconduct’ and ‘investigation,’ serving as a reminder that the buying function at one of the world’s most iconic food companies had something of an annus horribilis in 2019.