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RETAIL VIEW: Shippers irked by retailer's back audits

Recently, a number of Western shippers received debit memos from Canada Safeway as a result of back audits that are two or three years old.

Apparently, independent auditors have looked at the retailer's books including invoices, bills of lading and warehouse documentation, and determined that there were discrepancies in what was paid for and what was received.

The retailer has sent debit memos to shippers covering shipments as far back as 2003.

One shipper told The Produce News that his company has not received any of these debit memos from Canada Safeway, but he has heard of similar efforts by Costco in the past. He also said that when two chains merge, he has heard of debit memos being sent out when books are audited.

Irvine, CA-based Western Growers Association Executive Vice President Matt McInerney confirmed that at least a half-dozen shippers have contacted the association asking for advice on how to deal with these debit memos. WGA advised its members of the situation in an e-mail the first week of July. In addition, the association sent a letter to Canada Safeway expressing concern over the situation.

"We are disappointed that a policy would be initiated that presumably uses outside auditors to invalidate the typical buy/sell relationship," said Mr. McInerney.

He explained that each produce industry transaction has a unique set of circumstances. It is not uncommon that the original agreement be altered at some point during the transaction. But once each transaction is settled and paid for, it is inappropriate to come back months or years later and point to what appears to be a discrepancy on paper.

The WGA executive said that the well-after-the-fact debit memos have various problems associated with them, including being beyond the provisions of produce industry law, and also violating the spirit of produce industry transactions.

Mr. McInerney said that the Perishable Agricultural Commodities Act, as well as Canada's Products Standards Act and the Dispute Resolution Corp., has a nine-month statute of limitations on such reconciliations.

Stephen Whitney, chief executive officer of the DRC, confirmed that such audits well after the fact do violate the provisions of the DRC. However, he said that Canada Safeway is one of the few retailers operating in that country that is not a member of the DRC.

Members of the DRC are bound to negotiate disputes within the organization and must abide by the nine-month statute of limitations on invoice reconciliations. "Our view is that two parties can agree on anything they want, he said, "but under the DRC, one party cannot unilaterally impose conditions that have not been agreed upon.

If Canada Safeway were a member and the DRC were asked to get involved in such a case, he said that debit memos issued unilaterally after the nine-month deadline would not seem to be reasonable.

Mr. McInerney said that the practice violates the spirit of the various laws regulating the selling and buying of produce in the United States and Canada. He said that in all of these cases, the invoice has been paid and the shipper has done his own reconciliations with the individual grower involved. To go back and readjust the grower-shipper accounting is inappropriate, if not impractical.

Mr. Whitney said that on some of these invoices, the legal statute of limitations might not have expired, as that is generally one or two years under contract law. The perishability of produce is one of the main reasons that produce industry law under the PACA and DRC utilizes a shorter time period for adjudication.

The DRC executive has not discussed the situation with Safeway Canada, but he said recently that similar after-the-fact produce audits were averted once the DRC explained produce industry practices to the auditor.

Mr. Whitney explained that it is somewhat commonplace in the grocery end of the business for auditors to look for adjustments well after the fact. In those situations, an auditor will come in, look at the books and often find discrepancies in billing practices. For example, a retailer may have a contract price to buy a can of soup at 27 cents a can day in and day out. An audit could reveal that a billing error occurred months earlier and for a one-week period that soup was billed at 30 cents per can. Debit memos in such situations are routinely issued.

Recently, a Canadian retailer's outside auditor was finding discrepancies in produce loads billed the same day. For example, two loads of tomatoes were received by the retailer at $8 per carton early in the day, and another load came in from the same shipper that same day at $9 per carton. Presented with these facts, the auditor -- unfamiliar with produce industry practices -- assumed there was a mistake and issued a debit memo for that "extra dollar.

The DRC was able to intervene and explain that it is quite ordinary for produce loads to have inconsistent pricing even within the same day. Mr. Whitney was reluctant to discuss this case because it was no longer an issue; however, he said that similar to the Canada Safeway case, it did point out that the produce industry is unique and works well with its own set of rules and practices.

Safeway Canada had not responded to the WGA letter by this publication's press time, nor did the retailer's public affairs department return a phone call by The Produce News to discuss this matter.