Whether you shop at Macy’s or not, surely you know the brand. According to Statista, in 2023, Macy's was the leading department store in the United States by revenue, with sales of approximately $23 billion.
I can’t think about Macy’s and not think of the Macy’s Thanksgiving Day parade. In 2024, the company had a tough Thanksgiving week.
On Monday, November 25, 2024, they made the decision to delay a results announcement scheduled for the next day. That Thursday was the Thanksgiving Day parade, but I highly doubt anyone in accounting was enjoying the festivities.
One person on Macy’s accounting team was responsible for handling the expenses associated with small parcel delivery. That person made a mistake. At some point, they realized their error, but for reasons unknown, decided to intentionally cover it up - and continue compounding the associated value.
This led to between $132 - 154 Million in false expenses between Q4 2021 - Q3 2024.
Although these are huge numbers, it is important to consider them in context. The amount is small relative to the $4.36 BillionMacy's recorded spending on small parcel services during that window of time.
The problem is that it is also greater than the $105 Million in net profit the company reported for the fiscal year that ended on February 3, 2024. If we could somehow turn back the clock, Macy’s would have reported a $50M loss in their previous financial year. That incorrect information influenced investor decisions, analyst recommendations, etc.
Problems that Accrue
Over 90 percent of publicly traded companies use accrual accounting, which pairs revenues and related expenses for the sake of reporting, even though goods and funds may move at different times.
Generally accepted accounting practices (GAAP) prefer accrual accounting, because company records and performance announcements are based on sales rather than payments. In theory, this provides investors, accountants, and auditors with a better, more timely perspective on how well a company is performing.
Since accounting is not my field for a reason, I went looking for more qualified perspectives on what may have happened.
“As a result, while the payments were appropriately recorded as cash outflows payments, the expense was never reported,” Emburse CFO Adriana Carpenter said to CIO magazine. “This coding could have happened at the time the transaction occurred, meaning it was tied to the transaction itself, or it could have been initially recorded to the P&L and a second journal entry was then posted to reverse the charge and move it to the balance sheet.”
Accounting is Hard
As part of covering this story, CFO Dive reported that the number of U.S. companies forced to withdraw finance statements is currently at a near-decade high.
“The flawed bookkeeping of the former Macy’s accountant speaks to growing pressures in the accounting industry, including an ongoing shortage of skilled talent, potential issues with organizational structure and oversight, and pressures for accounting teams to hit critical profitability or growth targets,” Editor Grace Noto wrote.
Anyone who has worked for a large enterprise knows that it doesn’t take a good imagination to see how there could be confusion between what is recorded on paper and what happens operationally.
In addition, the myriad of systems being used by companies can compound the problem. Codes and timing, categorization and integration, accounting is as much an art as it is a science, as Macy’s - and one accounting employee in particular - learned the hard way.
