Dick Smith chief financial officer Michael Potts has revealed issues with the company’s accounting for its controversial rebates program.
The director told the NSW Supreme court on Wednesday that Dick Smith was using “undisciplined practices” around buying and how it tracked rebates.
Chief among the concerns was Dick Smith’s “whiteboard” system for tracking rebates. Potts told the court that former director of supply chain John Skellern used a whiteboard in Dick Smith’s offices to track rebate sales and targets against actual sales and rebate targets.
The buying team would wipe out the old number and write a new number on the board each week, and that an accountant would record information from the board.
After the practice was criticised by auditors Deloitte, Dick Smith implemented an automated recording process and took rebate control away from Skellern.
According to Potts, the whiteboard process led to instances where buyers were negotiating separate deals from the same supplier and duplicating the rebate across both deals.
Administrator McGrathNicol released its creditors report in July claiming that Dick Smith made its purchasing decisions based on earning rebates rather than customer demand. This led to a build-up of redundant stock, totalling $180 million by October 2015.
Potts denied that purchasing decisions were made based on rebates, but said Dick Smith always had a strategy to maximise earnings from rebates inherited from Woolworths ownership.
He said he was always in a “perpetual state of dissatisfaction” when it came to inventory management, though there were areas of disagreement among management about appropriate levels of stock.
Potts said the retailer's heavy push into new categories such as fitness wearables required purchasing more stock than was probably necessary in attempt to dominate the market. Dick Smith also had ambitions to open even more stores in regional areas, requiring further stock purchases.
Potts' examination continues on Thursday. Chief executive Nick Abboud is scheduled for examination later this week. The supreme court hearings into how the company collapsed are spearheaded by receivers Ferrier Hodgson.
Dick Smith sank into administration in January with approximately $390 million in debt. The collapse lead to all of Dick Smith's stores closing and approximately 3,000 staff losing their jobs. The retailer officially entered liquidation in July, but McGrathNicol warned there was very little chance of unsecured creditors retrieving their debt.