Tuesday, June 2, 2009

When old fashioned products run into old fashioned crime (Archway)

I remember Archway cookies from my younger years, but I had forgotten about them. But they're still around - well, they WERE still around.

The New York Times details one long night in April 2008 during which Archway's finance director made a shocking discovery:

SITTING in his office late one evening in April last year, Keith Roberts, the director of finance for the Archway & Mother’s Cookie Company, stared in shocked silence at the numbers on his desk.

He knew things had been bad — daily reports he had been monitoring for six months showed that cookie sales at the company had been dismal.

But Roberts wasn't shocked by bad news - he was shocked by good news.

But the financial data he was looking at showed much more robust sales.

“Where on earth had all of these sales come from?” Mr. Roberts recalls thinking to himself.

Tired, but intrigued, he began digging through orders and shipping and inventory records until, well after midnight, he reached the conclusion that Archway, based in Battle Creek, Mich., was booking nonexistent sales.

In real times, the fraud wasn't that big - a few million dollars at most - but the Times notes that this was enough to push Archway into bankruptcy. But the Times derives another lesson from the scandal:

Archway’s collapse is a reminder of the apparent lengths to which some of the nation’s biggest banks went to do deals with private-equity firms during the recent buyout boom.

Wachovia...provided tens of millions of dollars in loans and lines of credit backed by assets to Archway despite the fact the company had not had a formal independent audit of its financial statements in three years.

For what it's worth, Wachovia is no more. Perhaps we can see why.
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