Global package foods company Kraft Heinz announced in a statement to the Securities and Exchange Commission this week that it would restate nearly three years of financial statements after an internal inquiry, led in part by internal audit, found misconduct in the company’s procurement department. The company will restate earnings for all of 2016, 2017, and the first three quarters of 2018.
The investigation has “identified that several employees in the procurement area engaged in misconduct. The company has recorded adjustments to correct prior period misstatements that increase the total cost of products sold in prior financial periods,” Kraft Heinz stated in the SEC filing. “These misstatements principally relate to the incorrect timing of when certain cost and rebate elements associated with complex supplier contracts and arrangements were initially recognized,” it added. The restatements will require adjustments of approximately $208 million, Kraft Heinz noted in the filing.
The procurement misconduct likely involved side agreements and modifications to agreements with vendors on the timing of when purchases were recognized and when rebates were earned, based on the SEC filings and prior statements on the matter.
A spokesperson for the company says that the investigation was led by internal and external audit and legal. “During the course of a thorough internal investigation, some discrepancies were uncovered which affected the way earnings were calculated between periods. While we don’t believe that the misstatements are quantitatively material to any prior period, due to the qualitative nature of the matters identified, the company determined that it is appropriate to correct the errors in previously issued financial statements,” says Michael Mullen, senior vice president of corporate affairs at Kraft Heinz.
SEC Issues Two Subpoenas
In February, buried in a press release announcing its 2018 Q4 results, the company stated that it had received a subpoena from the SEC associated with an investigation into the company’s procurement area. It said the SEC was investigating its “accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.” At that time Kraft Heinz said it was recording a $25 million increase to costs of products sold as an out of period correction as the Company determined the amounts were immaterial to the fourth quarter of 2018.
In the most recent SEC filing, the company also said it has received a second subpoena associated with its assessment of goodwill and intangible asset impairments, and that this subpoena also included document requests related to the procurement area.
“The Company is taking action to improve our policies and procedures and will continue to strengthen our internal financial controls,” says Mullen. “The findings from the investigation did not identify any misconduct by any member of the senior management team. We are pleased to report that the investigation is now substantially complete.”
In April, the company said that CEO Bernardo Hees, who has led the company since it was created in a 2015 merger of the two food giants for which it is named, will be replaced by Miguel Patricio in July. 