Kmart Corp. has launched an investigation after the discount retailer's board of directors and U.S. federal regulators received an anonymous letter that raised questions about its accounting.
Kmart, which filed for Chapter 11 bankruptcy protection Tuesday, said it received a letter purportedly from employees of the company "expressing concern regarding unspecified accounting matters."
The Troy, Mich., retailer gave few other details about its internal investigation or the letter, leaving company watchers to speculate whether it might contain a legitimate complaint or whether it could just as easily be a crank letter from a disgruntled employee.
The company made the announcement at a time when the spotlight is on corporate accounting practices, as U.S. congressional hearings continue into the collapse of energy giant Enron Corp.
"The responsible action by any company is to conduct an investigation and let people know that we're co-operating fully with the SEC investigation," said Kmart spokesman Jack Ferry.
He added that the letter was "very vague" and that Kmart doesn't know who sent it.
Most observers yesterday also didn't see much similarity between the Kmart investigation and a letter by a whistle blower within Enron last summer raising concerns about accounting practices at that company.
Most believe any questions about accounting, if indeed there prove to be any, were most likely not a determining factor in the company's bankruptcy. Kmart said it had received the letter before it sought bankruptcy protection.
Instead, observers said the company has suffered from much larger, much more obvious problems, namely the continual, competitive pounding from rivals Wal-Mart and Target.
"There are real, macro, competitive issues that forced the company into bankruptcy," said Karen Sack, an analyst at Standard & Poor's in New York.
She speculated that any possible accounting irregularities, if they exist, probably wouldn't have had a decisive impact on the company's bigger problems.
Kmart said in its press release yesterday that it was co-operating with regulators as it conducts its investigation. Kmart has also reportedly hired the prominent law firm Skadden Arps Slate Meagher and Flom, as well as accounting consultants, to conduct its internal investigation.
In addition to Kmart's board of directors, the letter was also addressed to the Securities and Exchange Commission, which has authorized a private investigation into the matter, according to Kmart, and to the company's auditors PricewaterhouseCoopers.
Kmart also said yesterday that it has advised regulators "of the independent investigation in progress and that the company intends to co-operate fully with the SEC."
The SEC yesterday would not comment on Kmart, while PricewaterhouseCoopers only confirmed that it would co-operate in any investigations.
But if the intention of the letter writer was to tap into the sweat-inducing scrutiny Corporate North America is currently facing regarding its accounting standards, the letter was well-timed, observers said.
"We've had all that attention about the whistle blower letter [at Enron] which was internal," and which came before Enron's bankruptcy, said Tim Lucas, director of research and technical activities at the Financial Accounting Standards Board in Norwalk, Conn.