A specialty leather retailer and its former CEO have agreed to pay $225,000 to settle SEC charges that flawed inventory controls triggered a multi-year restatement.
Tandy Leather Factory Inc.’s inventory tracking system didn’t keep historical price information and resulted in inaccurate values that were fed into the company’s accounting for inventory, net income, and gross profits, according to the Securities and Exchange Commission settlement order released Wednesday.
Following a 2019 audit committee probe, the company, based in Fort Worth, Texas, restated its full-year financial results for 2017 and 2018 and one quarter of 2019, showing wide swings in those figures. In 2017, net income dropped by almost half compared to the previous reporting, only to rebound 124% for the corrected 2018 accounting, according to the SEC.
Tandy and former CEO Shannon Greene failed to maintain adequate controls over its disclosures and financial reporting, the SEC said. Greene also certified that those guardrails were effective even though she and others knew of the gaps in its inventory system and relied on manual workarounds, it said.
The company cooperated with the SEC and has since installed a new accounting system, hired additional accounting and financial reporting staff, and brought in experts to improve its controls framework—factors the SEC considered in reaching the settlement, the order said.
Greene, a certified public accountant, previously served on a small business advisory committee to the Financial Accounting Standards Board.
In 2007, she cautioned Congress about the higher burden smaller companies faced to comply with tough internal controls requirements that were included in the Sarbanes-Oxley Act. The requirements remain a key, but controversial aspect of the law, which aimed to ensure accurate accounting in the wake of the Enron scandal.
Neither Greene nor Tandy immediately responded to requests for comment.