Ace Hardware finds $154 million error

Ace Hardware discovered an approximately $154 million shortfall on its books while preparing to convert from a retailer-owned cooperative to a for-profit corporation and likely will have to restate its financial results for the last five years, President and CEO Ray Griffith said Wednesday.

Ace has called off the conversion plan and hired an audit consulting firm to help rectify an accounting problem that appears to date to 2002, Griffith said. The company may have to forgo returning profits to store owners this year as a result, he said.

He said no money or inventory is missing, but the Oak Brook-based company has not been able to determine the source of what he characterized as a "significant accounting error."

Ace notified the dealers who own its 4,600 stores of the problem in letters Wednesday from Griffith and its board of directors.

The chief executive said a review of the company's financial documents found its inventory is $154 million less than its general ledger balance -- the company's primary method for recording its financial transactions.

"It is basically … an overstatement of gross margin that resulted in an overstatement of gross profits that resulted in an overpayment of patronage dividends over that period of time," Griffith said.

"There is no missing money, there is no missing inventory, there is no evidence of theft. … Obviously we're upset, but we feel very confident that it's a manageable situation and that our business is sound. We're still a very viable business, our comp sales are doing well. This is an accounting issue."

The company's board of directors hired Protiviti Inc. to correct the error.