Vendor Bender Charge: Home Depot Again Dinged by Phony Claims

July 8th, 2008
By James Covert
NY Post

After years of legal tussles, Home Depot faces fresh charges that it's bilking its suppliers with phony claims of damaged and defective merchandise.

A Home Depot store in Florida racked up a flurry of spurious claims against vendors last month to shore up a weak financial report, according to a current employee who has requested anonymity, fearing retribution from the company.

The alleged fraudulent tactics - which have drawn scrutiny from the Securities and Exchange Commission - include reducing a store's so-called "shrinkage," or losses from stolen and damaged goods, by billing those losses to suppliers.

Some Home Depot employees say the company has moved to clamp down on the practice, known as "return-to-vendor" fraud, by upgrading its inventory-tracking systems.

"Home Depot has clear policies in place which govern the handling of return-to-vendor merchandise," spokesman Ron DeFeo said, adding that the fresh allegations are "without merit."

Nevertheless, Home Depot still grades its store managers with measures that include markdowns and shrinkage - both of which can be manipulated by inflating claims against vendors, said Mark Schwartz, a Bryn Mawr, Pa., attorney who has represented several Home Depot employees alleging vendor fraud against the retailer.

"We've tried to tell them about this, but they don't want to know," Schwartz told The Post. "They say these are isolated cases, but we think it has been standard operating procedure all over the country."

The Florida employee who alleged fraud last month contacted Schwartz after failed efforts to interest Home Depot's loss-prevention officials in the problem, Schwartz said.

The attorney said talks with Home Depot hit a roadblock when Home Depot asked for information, but refused to guarantee it wouldn't retaliate against the employee. Schwartz said he has since passed on the information to the SEC.

In its annual 10-K securities filing in April, Home Depot said the SEC last contacted it about return-to-vendor issues in January 2007.

Meanwhile, a US Department of Labor judge has petitioned a federal court to force former Home Depot manager Guy Alan Wells to testify in an ongoing return-to-vendor case in Washington, DC. Wells has ignored a subpoena and court order.