Stein Mart Inc. on Tuesday announced an agreement with the Securities and Exchange Commission to pay an $800,000 penalty, without admitting or denying the agency’s findings, to settle charges of using improper accounting procedures in fiscal 2010, 2011 and the first quarter of 2012.
The SEC said in a news release that its investigation found the Jacksonville-based fashion retailer misstated its earnings in those periods because it improperly valued inventory that was subject to price discounts.
The regulatory agency, which also charged Stein Mart with having inadequate internal accounting controls, said the misstated earnings included an overstatement of almost 30 percent for pretax earnings reported in the first quarter of fiscal 2012.
Stein Mart eventually restated its earnings for that quarter and for fiscal 2010 and 2011 after its external auditor said its accounting treatment for markdowns was improper.
“Inventory is one of the most significant assets for retail companies and as a result, it is critical that companies have effective internal accounting controls to ensure that inventory is valued properly,” said Michael Maloney, chief accountant of the SEC’s Enforcement Division, in the news release.
“Stein Mart failed in this regard as its internal accounting controls to ensure proper inventory valuations were inadequate in various ways,” he said.
The SEC also said it found Stein Mart had improper internal accounting controls in the areas of software assets, credit card liabilities, and other inventory-related issues.
Stein Mart said in its news release that the SEC did not allege any fraud by the company and did not bring charges against any individual.
Stein Mart also said it had previously established a reserve for the potential settlement of the SEC investigation, so the fine will not affect its finances in the third quarter this year.