OFFICE DEPOT's LEGAL WOES SPREADS ACROSS THE U.S.
OFFICE DEPOT's LEGAL WOES SPREADS ACROSS THE U.S.
2009-08-04 at 9:28:26 pm #22777
OFFICE DEPOT’s LEGAL WOES SPREADS ACROSS THE U.S.
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.
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.
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.
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.
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.
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.”