Surprising development at Ace

The shortfall dates back about five years and was discovered during the process of preparing documents required by the Securities & Exchange Commission if it was to make the coop-corporation conversion. That conversion, though proposed by management just weeks ago, would still have had to be approved by the cooperative’s dealer-owners. In an interview with the Chicago Tribune Ray Griffith, Ace’s CEO; left open the conversion idea, but said the primary goal now “is to get to the bottom of this accounting discrepancy”. It seems likely that member-owners of the co-op will have to forego their patronage dividends this year, and possibly part of next year. In 2006 the company reportedly distributed US $ 108.8 mio to its owners. Rebates are based on purchases in the cooperative model, with part paid in cash and the remainder in stock in the cooperative. As Griffith said, “We have an accounting error, but it is manageable.” Griffith and Ace’s board sent separate letters to the firm’s 4 600 stores, explaining the situation. The discrepancy is between the company’s general ledger balance and its actual inventory records, resulting in overstating its gross profit and the patronage dividends paid to dealers in previous years. Ace officials say there is no evidence of missing inventory or theft. The company has hired an independent consulting firm to identify the cause and resolve the matter. Griffith told dealers in his letter that “most or all of our 2007 patronage dividends might be applied to offset the expected financial adjustment”. He went on to explain that until they know the exact amount, the company cannot be certain that the 2007 patronage dividend would be entirely sufficient. Ace’s plan to convert to a conventional corporation is seen by some dealers as an attempt to gain more control over the retail stores and make them more similar in size, design and merchandise selection. Some dealers believe these changes are contrary to the individuality that many retailers see as their strongest competitive weapon against giant chains such as Home Depot and Lowe’s. Ace has been attempting to exert more influence on its members. By strongly emphasizing Ace store identification and urging members to adopt a standardized store layout and colour scheme, Ace has been positioning itself to look like a corporate chain instead of a collection of thousands of individual retailers.