OFFICE DEPOT's LEGAL WOES SPREADS ACROSS THE U.S.
OFFICE DEPOT's LEGAL WOES SPREADS ACROSS THE U.S.
2009-08-04 at 9:26:43 pm #22400
OFFICE DEPOT’s LEGAL WOES SPREADS ACROSS THE U.S.
Office Depot has spent the past year trying to resolve widespread accusations it overcharged government customers including California for scissors, hole punches and other desk-drawer staples. But the Florida retailer’s legal woes continue to multiply.
The company, while denying wrongdoing, acknowledged in financial filings this week that attorneys general in California and five other states, as well as federal authorities, are investigating its multimillion-dollar governmental supply contracts.”We are currently cooperating with the Florida, Texas, Missouri, Colorado, California and Ohio Attorneys General with respect to civil investigations regarding our pricing practices,” the company said in its second-quarter report. “We are also cooperating with the U.S. Department of Defense, the Department of Education and the General Services Administration with respect to their joint investigations with the Department of Justice.”The company in August repaid $2.5 million to California after a Mercury News investigation last year and a subsequent state audit alleged overcharges and other concerns. Georgia officials last year suspended Office Depot from doing business in the state for five months after its own audit cited $230,000 in overcharges.
Company officials did not specify the nature of the latest investigations, and a spokeswoman for California Attorney General Jerry Brown said the state justice department could not comment. But the company’s new legal woes appear to involve its supply contracts through U.S. Communities, a nonprofit government purchasing cooperative based in Walnut Creek. The co-op brokers contracts between public agencies and private vendors for items ranging from office supplies to artificial turf; it currently serves 36,000 cities, counties, school districts and other agencies.
San Jose has contracted through U.S. Communities since 2001 for furniture, hardware and technology equipment, but it does not buy office supplies through the Office Depot contract.
The investigations apparently were instigated by a former employee, David Sherwin, an account manager in Florida who left Office Depot in April 2008 after 12 years. In complaints to state and federal authorities, Sherwin alleges his former employer made false statements to its government customers by manipulating the U.S. Communities purchasing contract – for example, by randomly changing prices and entering false cost data in the Office Depot ordering system. That allegedly caused the agencies to buy the company’s products at higher prices than they had agreed upon.
Sherwin further alleged that three former Office Depot officials hold senior positions with U.S. Communities and that the nonprofit gets “kickbacks” from the company for lining up government buyers.
Office Depot spokesman Jason Shockley said in a statement to the Mercury News that the company “has always prided itself on integrity, and any allegations surrounding Office Depot taking ‘kickbacks’ from U.S. Communities are false.” He added that Office Depot won the U.S. Communities office and school supplies business through competitive bids in 1996, 2000 and 2005; the company was chosen by Los Angeles County, which acts as the lead public agency for the office and school supplies contracts.
U.S. Communities said in a statement that the organization itself “is not the target of any investigation” and described the alleged “kickbacks” as “a loaded and inaccurate term of how U.S. Communities collects fees for administering contracts with local governments. As a nonprofit, U.S. Communities collects 1-2 percent of total sales from suppliers, to cover administrative fees.”
U.S. Communities acknowledged that three former Office Depot officials work for the organization as program managers for various contracts, including Office Depot. But the agency said they do not have oversight over the organization or a decision-making role in the Office Depot contract.Office Depot has also posted responses to the allegations on its Web site, asserting Sherwin is a disgruntled ex-employee who was fired for “workplace misconduct, including sending highly inappropriate and threatening internal e-mails.” The company claims Sherwin has since waged a smear campaign against it, aided by small independent dealers who are its competitors.”Unfortunately, the media, our competitors and others in the industry may have taken advantage of the situation by promulgating Mr. Sherwin’s allegations,” the company stated. In an e-mail to the Mercury News, Sherwin said he stood by his allegations, which he has made under oath.
U.S. Communities commissioned its own review last year of Office Depot’s compliance with the office supplies contract. Sacramento-based accounting firm Macias, Gini & O’Connell reviewed transactions involving 455 items over a three-month period and found only one case where a public agency – Fairfax County, Va. – appeared to have been billed at a higher price for an unspecified furniture item.But Sherwin isn’t the only ex-employee to accuse Office Depot of dirty dealing with government customers. Earl Ante, a former Office Depot salesman from Fremont, filed a federal lawsuit this week accusing his former bosses of firing him for refusing to falsify data that showed the company overcharged the city of Berkeley hundreds of thousands of dollars.
Berkeley officials conducted their own investigation of their contract with Office Depot and concluded the city was overcharged $289,000 over two years. Office Depot repaid the city in April.The National Office Products Alliance, the trade association for independent office products dealers who compete with big chains like Office Depot, says the mounting overcharging accusations show that “sole-source” deals with big-box retailers don’t deliver the promised savings.”We as consumers comparison shop,” said NOPA President Chris Bates, “and we think governments should be doing the same thing.”