Consumer products company Tupperware Brands Corp. agreed to pay $900,000 to settle charges of failing to maintain sufficient internal accounting controls and keep accurate books and records at its Mexico affiliate, the Securities and Exchange Commission (SEC) announced.
Tupperware acquired Fuller Cosmetics, including its Mexico business, in 2005. Tupperware should have then put in place appropriate accounting policies and procedures but instead maintained the legacy practices of the unit, the SEC alleged.
Fuller Mexico relied on direct-to-customer sales by its independent sales representatives, called “Fullerettes,” according to the SEC’s order filed Thursday. The sales targets for the Fullerettes and sales directors were unrealistic, an internal investigation by Tupperware later found.
From 2016-20, as the Fuller Mexico’s financial performance lagged its sales targets, management overrode controls and recorded inflated sales figures by shipping unordered products to the Fullerettes that didn’t have purchase orders, called non-PO sales, the SEC said.
Sales division directors at Fuller Mexico who were at risk of not meeting their sales targets used non-PO sales to make it appear business was more robust, the SEC said. Fuller Mexico embraced this practice by adding IT software in 2018 to make it more efficient for the directors to add unordered products to a Fullerette’s existing order, the agency continued.
“At certain points, Fuller Mexico sent more product via non-PO sales than the Fullerettes could reasonably sell,” the SEC said, “and a number of Fuller Mexico’s non-PO sales were made at the end of financial reporting periods.”
As non-PO sales increased, Tupperware failed to adequately reserve for the increased returns because of Fuller-Mexico’s lenient recording practices and did not respond to red flags regarding the non-PO sales, according to the order. Fuller Mexico management also overrode internal accounting controls by failing to book required reserves to make it appear the unit was doing better financially than it really was, the SEC said.
A regularly scheduled audit of Fuller Mexico in the third quarter of 2019 by Tupperware’s internal audit team flagged the elevated number of product returns. Tupperware began a review that incorrectly concluded an accounting estimate change was necessary, when correction of an accounting error was necessary, the SEC said.
Tupperware conducted two additional investigations of Fuller Mexico, which led to discovery of the errors.
Tupperware disclosed in an amended Form 10-K in August 2021 it misstated the net sales, accounts receivable, inventories, and accrued liabilities at Fuller Mexico from 2016 through the first quarter of 2020 on its annual and quarterly financial statements. About $5.2 million in reserves at Fuller Mexico had been erroneously recorded, and $2.4 million of other accruals had been excluded on financial statements during those years, Tupperware disclosed.
“Tupperware acknowledged that, historically, it was unable to track the volume of Fuller Mexico’s non-PO sales in a sufficient level of detail and, as a result, was unable to monitor the use of this type of sale,” the SEC said.
Tupperware violated the Exchange Act by not keeping books and accounts that accurately reflected their transactions and assets, the SEC determined. The company neither admitted nor denied the agency’s findings.
Tupperware did not reply to a request for comment. The company sold off its Fuller beauty business in Mexico in October 2021.
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