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BIG ISSUES
Welcome to the new section of Proficiency Post.

This will be the area where we cover the detail of the increasing number of BIG ISSUES happening in this dynamic Office Productivity industry.

Here we will cover the latest shenanigans at Office Depot, the downward spiral at OfficeMax and conversion of ECi2 from software supplier to finance house.
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15 Sep 08

We have switched all new content to the new Proficiency Post site: including Latest News, Frost Bites, the BIG Issues, GoEco, Proficiency Profiles and FAME Index. Proficiency Post now has faster access… quicker search of past articles… easier downloads of individual articles for print purposes, and generally speaking a more enjoyable and entertaining read.

 

Companies (Enterprise) and Dealer Group (Group) members ask about our special discount rates. Email peter@proficiencypost.com or call +44 1932 784887

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Audit Report Review:
Office Depot -
State of California contract
California
scheming
State suckers for
Depot duplicity?

3rd category con-tract...sharp practice on a tiny core spend…the web of deceit…the $2.5M payback…the Epylon charade…oh and, a slap on the wrists…until new contract placed (Feb'09?) state will continue with Depot. Why?


8 Sep 08
I just received a copy of the 84 page Audit Report by Rick Gillam commissioned by the Procurement Department (PD) of the State of California. Sadly, I ploughed through and discovered some absolute gems that I was not clear on before. I'd like to share them with you.


Jim Butler, Chief Purchasing Officer (CPO) for the state issued a statement responding to the findings and reporting action taken including the facts that Depot had paid back $2.5M in compensation and $56,000 in overcharges.

3rd category killer
The audit report highlighted some serious breaches in 'control' by Depot and the PD that allowed the bad practices to go unchecked for so long. We use the word 'control' loosely in the case of Depot, because in our view it appears that Depot deliberately introduced the off contract '3rd category' to supply restricted product to the state knowing that they were high margin earners, hoping not to be exposed.

The report highlighted that 35% of the $41m spend with Depot was 'off-contract' and should not have been supplied. Examples of purchases made were: 68 digital camera orders worth $33,000, 21 TV orders worth $91,000 and 'virgin' paper orders worth $375,000.

Sharp practice
Contrast these off contract transactions with the audit reports naivety regarding contract core purchases. They quoted the example, Rick Marlette highlighted in the Georgia contract, about the '15cents scissors'. These cheap scissors were discontinued without notice and replaced with scissors costing $2.99-$3.79. Did anyone in the state believe that scissors could be supplied at 15 cents?

Another example of naivety is the auditor's proclaiming $200,000 of savings delivered by Depot on core binder clips. Apparently, the state's contract price was 4 cents/box of 12 compared with retail customers paying 99 cents/box. Couldn't they see that Depot were sucking them in with low-ball-below-cost pricing whilst balancing the books handsomely with non-core and off contract purchases which amounted 87.5% of the $41m spend. Yes the core items only amounted to 12.5% of the total spend.

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It is easy to price below cost when the core contract spend only amounts to a tiny $5m of the $41m spent. Depot was deceiving the state.

 

The web of deceit
The auditors found discrepancies in Depot's systems and controls between printed contract/catalog prices and information causing state employees to choose more expensive and for Depot more profitable, non-core and off contract items.

Core contract items are supposed to be flagged in red or yellow as 'Best Value' items in the Depot webstore. The auditors found that on only 3 of 27 front pages were 'Best Value' products shown. Also if there was no  image of the 'best value' core item, then the item would not be included in the keyword search process!

These discoveries were mentioned in the report almost as accidental mistakes, small system failures which Depot would acknowledge, say sorry, pledge to put it right asap and then everything would be OK. All forgiven because the state bought the illusion of the massive savings that Depot had brought them.

This was evident from Butler's report. He opened up by making reference to the $57m contract (over 2 years) and immediately credited Depot with "achieving significant savings". Then as if to prove the point he stated that " a review of 20 most commonly purchased products found that the state saved an average of approximately 30% over the rates charged to retail customers".

Sold hook, line and sinker by Depot's propaganda and typical seduction process.

Mr Butler please understand that these core items are relatively low value. As the auditor pointed out, only $5m of the $41m checked. They can afford to sell you below their cost when they are stitching you up on the $36m. That's why when they were exposed by the auditors, they readily paid you $2.5m "in the spirit of cooperation and customer satisfaction"!!!??

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The Epylon charade
The auditors and Butler were happy that the 9 subcontractors representing small businesses and disabled veteran business enterprises (DVBE's) were 100% providing a primary customer service and a commercially useful function (CUF).

 

What a charade. This is simply a sham scam benefiting Office Depot. The 9 subcontractors are not genuine OP dealers and act simply as a front for Depot with the Epylon portal processing orders directly to Depot (acting as a wholesaler!) for delivery to the state by Depot.

How they satisfy the CUF provisions I don't understand. For most of them it is not their normal service and it is an extra participant in the supply chain…off the CUF more like…sorry! Moreover, it is anti-competitive and how Depot get away with it defies belief.

Butler's brief
Butler is obviously not happy with his own Purchasing Department's performance and loose controls. However, he does appear to be very forgiving of the desperately incompetent or deceitful  performance of Depot. By highlighting the huge savings delivered by Depot, that any local dealer could match on an everyday basis, he tries too hard to disguise the real issues.

If Butler were to request a cost pricing report from Depot plus a vendor rebate schedule, I think he'd find that Depot would be losing money on $5m of the contract and profiting handsomely on $36m. Net result, after the wrongly supplied $14m off-contract items, huge net profitability.

Butler concludes his statement by stating that "a new procurement process will begin immediately to evaluate solicitations for a new state office supply contract" and amazingly "until a new contract is in place (Feb'09 according to Depot) we will continue to use Office Depot". It seems that Butler and Depot have a cosy relationship because Depot have interpreted this as an official contract extension.

Mr. Butler is all forgiven for Depot? Will you really seek and consider a group of genuine local dealers for the next contract…dealers you can trust?

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California Communities Accounts Analysis

Nonprofit managers
HB Capital get $10m

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Depot's US Communities partners involved in lucrative bond issues

12 Aug 08
HB Capital Resources (HB) is the mysterious management company that runs US Communities (USC) and California Communities (CAC). We think that HB is owned by 2 people Jerry Burke and Stephen Hamill and based in Walnut Creek, CA in an office of approx. 30 people. 

USC is a nonprofit company which acts as a buying group for state and local government agencies…its goal to reduce costs for users and ultimately the taxpayer. CAC is a public agency established in 1988 as a Joint Powers authority (JPA) which is involved in organising finance for community based public benefit construction projects e.g. affordable and senior housing apartments, hospitals and education infrastructure projects.

 

Orange County Register's reporter Brian Joseph is investigating the legitimacy of CAC activities. We have just analysed their 2007 accounts to 30 June 2007 and can summarise as follows:

  • CAC issued conduit debt of $4.8Bn in community based public benefit projects
  • Collected $16m in fees of which HB received a cool $10m
  • 196 private activity projects ranging from construction of affordable and senior housing apartments, hospitals and educational infrastructure to waste disposal facilities.
  • Public agency projects: 6 issuances totalling  $775m benefitting 52 public agencies 
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HB's gross income from CAC admin and compliance fees stacked up to $10m. We reckon their take on the Office Depot office supply contract is a minimum $14m based on the 2008 purchases level of $700m. So that's at least $24m without taking into account revenue from other USC supply partners which are at least another 25 suppliers including Autozone, Knoll, Haworth, Herman Miller, The Home Depot, Savin and Ricoh.

 

Our investigative team will dig deeper into the relationship between the USC and LA County, the agency that negotiated the USC deal with Office Depot. We will also be trying to obtain copies of USC's accounts.

 

We'll keep you posted on our progress in BIG Issues column.

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URGENT Dealer Alert

Bid for your share of state business…Now!

Message from whistleblower David Sherwin, the ex-Depot senior account manager in Florida

NOTICE!

US Communities customers are beginning
to seek competitive bids for office supplies

 

27 July 08

The Lee County School Board (FL), a six year US Communities/Office Depot customer, has announced that is is going out for a competitive bid. Lee County has been considered a 'flagship' account by both Office Depot and US Communities. This act will have major significance throughout Florida.

It can be expected, that government agencies throughout the
United States, will begin to shed their relationship with the Office Depot/US Communities program and prepare and issue their own local bids/RFPs.

 

Register Now!

Independent dealers need to register as vendors with all local county and municipal agencies within their service area. They must not take for granted the fact that the had been registered in the past, this is the first step to winning back business.

 

Government agencies that are issuing bids/RFPs, that are also dropping their affiliation with the Office Depot/US Communities, will be giving independent dealers a once in a life time opportunity to compete with a significant advantage over Office Depot.

 

Depot cannot bid below
US Communities pricing

The Office Depot/LA County/US Communities Master Agreement, has a Most Favored Public Entity clause.  Section 23.0 of the Master Agreement states: Vendor (Office Depot), represents that the prices charged to COUNTY in this agreement do not exceed existing selling prices for other customers for the same or substantially similar items or services for comparable quantities under similar terms and conditions. This statement means Office Depot, may not bid below their US Communities pricing without violating the US Communities contract.

 

This give the independent dealer the knowledge of what Office Depot's lowest bid floor will be. Eventually, when the US Communities contract no longer exists, this advantage will be lost.

Dealers emphasise your integrity

 Independent dealers in all government bid responses should highlight the terms: integrity, honesty, transparent pricing. Additionally it should be noted that Corporate Express had major pricing and integrity issues with the May 2008 audit performed on their contract with the Collier County Board of County Commissioners.

 

Other important independent dealer advantages: Locally owned and operated. Genuine local and personalised customer Service and not outsourced. Remember according to NFIB research independent businesses are highly regarded for integrity and trust.

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All independent dealers should go to the US Communities website, and search members in their area of service, and immediately target those government accounts. The investigations and audits in Florida are moving quickly, and will have a dramatic and immediate effect nationally.

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California Scheming…Scam alert

OK $Millions
in minutes

Explosive revelations about HB Capital who manage California Communities and the US Communities...Depot's $700m trading partner

***By BRIAN JOSEPH, The Orange County Register,(Dated 21 July 08)

 

22 Jul 08
In June 2006, commissioners of the little-known California Statewide Communities Development Authority (CSCDA) approved eight projects totaling an estimate $78.5 million. It took them 15 minutes. Three months later, commissioners approved another nine projects worth up to $163.6 million. It took 25 minutes. And in April this year, they approved two projects worth up to $198.3 million. In 8 minutes.

Quick work, huh?
I stopped writing this column for several weeks to investigate California Communities; last month, I wrote a story exposing its questionable practices. The public agency purports to finance projects of "public benefit" but I showed how it actually operates out of the public eye and funds things like a BMW dealership and an Indian casino.

Weeks ago, I asked to review minutes from commissioner meetings, but they weren't provided until after my story ran. On a CD, I received minutes from 112 meetings covering January 2005 to April 29 of this year.

The records illustrate how the agency operates outside of the public eye. There's little evidence the general public regularly attended their meetings, which were almost exclusively held in the private offices of the political associations controlling the agency, the League of California Cities and the California State Association of Counties.

Quarter of meetings lasted less than 30 minutes
In fact, of the 112 meetings, I counted 108 that were "special meetings," which under state law meant the agency only had to provide 24-hour notice of the meeting rather than the typical 72.

But what I found most interesting was the recorded length of the meetings. On many days, commissioners had to consider multiple financing proposals from as little as $1 million to as much as a $1 billion. Based on what I saw in the minutes, some looked like complex projects: apartments with taxable and nontaxable components, nine-figure health care proposals.

But in many cases, the commissioners dispatched of them quickly. At least 31 times, the board met for 30 minutes or less and during those meetings the board approved as many as nine proposals in a single sitting, proposals worth up to $108 million, $150 million, $200 million.

And not once did I see them reject a proposal.
"It's wrong. There's no due diligence," said Orange
County Supervisor Chris Norby. To Norby, this suggests California Communities is nothing more than a scam to make money. The political associations controlling appointments to the California Communities board rake millions off the agency's activities; in 2007, they received $2 million each.

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What's to stop them from rubber stamping every proposal just to juice up their own bottom line? The people behind California Communities vigorously deny rubber stamping projects.

 

In an e-mailed statement, the agency described its board as sort of a last line of approval after a lengthy vetting process that involves a review by California Communities staff and approvals from impacted local officials.

In fact, as part of that process, the agency said the board is notified of proposals "weeks, months, or years before staff brings them back for final approval. We've had a number of occasions where an inducement has triggered a request by the Board for more information, or has resulted in the project being steered away." Notifications were made in some of those meetings running 30 minutes or less.

The agency also noted "It is rare a project makes it all the way to the Board for public denial due to the prescreening (t)hat takes place." During the time frame referenced, the agency said 77 applications never moved forward for various reasons. Staff estimates "less than 50 percent" of proposed projects actually see bonds issued.

"By the time a project reaches the California Communities Board for final approval, it has completed an exhaustive process to vet matters of public benefit, community support, legal compliance, tax law compliance and state rules compliance," the statement said. "This process runs many months in the best of cases, and can sometimes last years. "By the time it reaches the California Communities Board, it is 'crossing the finish line.' "

But as I reported earlier, California Communities is staffed (30 people) by a private company, HB Capital Resources, which is also rakes money off of bonds issued by agency. In 2007, it made $10 million. So staff and the board have an interest in approving as many projects as possible. And they receive final approval in short meetings.

You tell me, is that a problem?
Brian Joseph (see pic below) covers Capitol issues for the Register. His Capitol Watchdog column focuses on government practices. To reach him, call 916-449-6046 or e-mail bjoseph@ocregister. His previous report on 22 May  re 'Public Agency, Private Benefit' can be read in full...click here

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Editor's Comment
These revelations are dynamite. We picked up this report yesterday when investigating the background to US Communities who like California Communities is a Nonprofit organisation. Both are managed by Steve Hamill and Jerry Burke's HB Capital Resources.

We have contacted Brian Joseph and will be speaking to him later today. We'll keep you posted keep you posted. Read Frost Bites 'NonProfit or Con-profit?' later today.

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ODGate scandal

Save Dave Appeal

David to 
beat Goliath

Open Letter to dealers
from Chip Jones urging
support for 'whisleblower' Sherwin in the battle with Office Depot

20 July 08

Fellow Dealers, I want to give you an update about the Office Depot investigation situation  And Yes, I want to ask your help again.  David Sherwin (now officially designated as a Whistleblower by the Florida Inspector General) needs and deserves our help. 

 

The investigation by the Florida Attorney General is progressing rapidly. And there are even more allegations which could prove to be even greater that the current investigations.

·         The new charges of possible accounting fraud are emerging

·         The US Communities mystery continues to unravel weekly ( see Peter Frost's report 'Conspiracy in the Communities?' below)

IF you had asked me if we could successfully battle Office Depot and knock them out of a highly respected position in the industry before David Sherwin came on the scene, I would have told you NO!   There is no doubt in my mind that he has and will continue to help us all. 

David Sherwin deserves our complete support.  Through his sheer determination to fight to expose these problems, he has done more to pave the way for our continued success and future than anything that I have seen in my 38 years.   

As I mentioned in previous e-mails, he is doing this with absolutely no income.  He has no job and spends his time completely engrossed in the battle.  He has been so excited by the independent community taking interest in what he is doing.  He believes that we are one of the reasons that he continues going forward. 

 

I know that times may be tight for many of us.  Some of us believe that they do not compete with Office Depot and therefore are not receiving benefits from all of this.  My belief is that this situation effects 100% of the independent dealer community. (Depot's pricing practices are systematic and global and negatively effect dealers in the US/Canada and UK/Europe)

 

I am asking again for your help.  We need to send money to David Sherwin if for nothing else to show our support.  David is literally fighting Goliath.  Depot wants nothing more than to crush him.  He faces threats and innuendo weekly.  Supporting David will help to keep this fight going all the way to the end.  My belief is that Depot is hoping stall him into destitution so he will give up, and I believe that we cannot let this happen.

 

Please send money to him now to show your support.  I am sending a second check to him today.  Please do not overlook or underestimate this cause, there may never be another one like it.

 

****Please make checks payable to David Sherwin, 1735 Brantley road, #1410  Fort Myers, FL.  33907

 

Many thanks

 

Chip Jones

President

Minton Jones

770-449-4787 ext 118

cjones@mintonjones.com

 

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ODGate Scandal
Weekend Review

Getting inside the USC

Conspiracy   in the Communities?

"We're just giving customers what they asked for" says Depot in defence of selling higher priced option.

20 Jul 08

We have received so much mail on the ODgate scandal…the ongoing case of alleged systematic overcharging and fraudulent practices by Office Depot on state and local government contracts. Readers tend to get the situations surrounding the states of North Carolina, Georgia, California, Nebraska and Florida. However, they express confusion about details of the $700m US Communities (USC) contract with Depot.

 

We will try and give a simple overview and give our interpretation of the suspicions and allegations surrounding the close and long term relationship between USC and Depot.

 

US Communities/Depot background

USC is a 'nonprofit' buying cooperative helping public agencies to reduce cost of goods by pooling their purchasing power nationwide. As a result the taxpayer should benefit. USC was establised back in 1996 with founding members LA County (CA) and Fairfax County (VA). According to their PR video over $1Bn was purchased in 2006 from 15 vendors for 20,000 agencies.

 

USC state that their purchasing professionals promote best practice and source from 'publicly and competitively solicited contracts'. They claim to have saved public agencies  $150m on a $1Bn+ contracts awarded in 2006.

 

Depot 'won' the USC contracts for LA County and Fairfax County back in 1996 and we understand have been the single source office supplier to the USC ever since. We understand that in 2008 Depot sales will reach an estimated $700m which is the biggest contract at USC.

 

We understand the USC contract is extremely profitable for Depot. Apart from higher unchallenged prices yielding fat gross margins there is no commission to pay reps…a saving of $35m pa compared with normal contracts.

 

The USC gets a rebate on purchases of as much as 2% which amounts to $14m pa at current purchasing levels. This is a huge incentive for current USC purchasing management to protect. Effectively, it acts as a major deterrent for competing office supply contractors like Staples, Corporate Express and OfficeMax. Moreover, according to the rules of engagement a new supplier would have to hand over any of their current public agency business which acts as a restrictive disincentive. So much for 'publicly and competitively solicited contracts'? There is no way that the USC will risk giving up on these rebates

 

According to the publicity video on the USC website, state buyers were quoting the benefits  as saving time and money in the purchasing process. Each quoted savings in $000, no doubt calculated by Depot by comparing public pricing from Depot's web site and the net charged. Given the number of agencies and multoiple pricing plans that Depot run, how would they check?

USC…a protection racket?

The protection process escalated when Stephen Hamill GM of USC recruited Kevin Juhring, the sales director at Depot responsible for setting up state and local government contracts including the USC. Juhring was followed by 2 close colleagues involved in public contracts for Depot: Chris Robb and Paul Tarragno. Not only is this seen as a massive conflict of interest, the suspicion is that these people were planted to protect the interests of Depot and the USC in maximising the growth of USC business with public agencies and the lucrative rebate scheme.

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To date we have not checked out the employee or cost base of USC, but $14m from Depot alone pays for a heavy number of buyers and administrators. According to Brian Joseph's investigatory article on 22 May 2008 entitled 'Public Agency, Private Benefit' there are some strong doubts about the integrity of the USC. We highlight relevant extracts which increase the suspicion about their unchecked activities

"Despite the potential conflicts of interest, California Communities (part of USC) has operated without much scrutiny since it was founded in 1988….Not a single elected official sits on the California Communities board….Staffing is also a separate function, provided by the private firm HB Capital Resources, which received the largest profits from California Communities.

A company of about 30 people, HB Capital is named after its two principals, Stephen Hamill and Jerry Burke, who operate several enterprises from an office in Walnut Creek, CA. With names like "U.S. Communities" and "Canadian Communities," these firms offer "public benefit" services to government and private groups.

Hamill declined to say how much of the $10 million collected from California Communities was profit, acknowledging only that "We get paid well." He noted, however, that HB Capital operates without profit guarantees and estimated that more than 50% of staff time is spent on projects that never appear before the board."

In a recent court case, Hamill stated, "Many of CSCDA's (involved with USC) business practices, procedures, and marketing strategies are confidential and are not available on the Internet or anywhere else in the public domain."

"The notion that the business plan of a public entity is, in any way, secret, confidential [or]hidden from the public runs counter to every notion of open government and accountability to taxpayers," said Tom Dresslar, spokesman for State Treasurer Bill Lockyer. "It's a bad way to do the public's business."

One can be forgiven from thinking that this is a giant protection racket for HB Capital and its well paid recruits. All they have to do is inflate their fees to USC to create a nonprofit result. Surely Arnie and he California State should be sending in the Public Auditors?

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Misleading price options

"Whistleblower' David Sherwin (pic left), the ex-Depot senior account manager who served the company for 11 years and looked after local government accounts, was fired in April by Steve Odland after asking the management to come clean about their 'overcharging' pricing methods in Florida.

Sherwin has explained the 2 main pricing options operating in Depot's Business Solutions Division (BSD).

Option 1 is 'discount from list' the perception being that this is manufacturers recommended price, when in reality it is a list price set by Depot, and varied on a frequent basis. Option 2 is a 'discount from the Depot public webstore price'. Sherwin has stated clearly that sales people were directed to switch customers to the Option 2 price wherever possible.

 

Option 2 pricing was sold in to customers as being 5% cheaper. In fact, it was the opposite, averaging 3-5% more expensive.

 

Depot's rationale for pushing Option 2 pricing was based originally on customers' requests. Let us explain: regular newspaper ads and store discount or sale offers would be picked up by customers and favourably compared with contract prices. These requests grew in frequency and became widespread. Depot granted the request and allowed customers including USC contracts to buy at Option 2 pricing. Of course, the Option 2 base price was changed frequently with no reference to any thing other than improving margins. With probably up to 100 different regional pricing schedules in the US checking was an impossibility.

 

Depot's defence of moving customers to webstore based pricing of course was based on "that's what customers asked for" even though they had misled them into believing it was a better deal. Sherwin has the evidence that proves that Depot's motive was to effectively charge more and make more margin by directing salespeople to sell in Option 1 pricing. One doesn't have to use much imagination to see that this process is probably rampant and unchecked with USC contracts.

 

Conclusion

Based on the above scenario and the whistleblower's evidence, it's hard not to 'smell a rat'. The USC looks like becoming a full blown conspiracy designed to maximise the income for USC/HB Capital and Office Depot. The SEC and Attorney General in California should conduct a full inquiry and audit of both the USC and Depot's practices.

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ODgate Scandal: Depot Demise Diary

Independent Dealer Alert!

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Depot
defects are worldwide

Catalog of overcharging, prebating, coding confusion,'bait and switch' practices are systemic

13 July 08
Some veteran observers in our industry tell me that there is nothing new in what Office Depot are doing with State contract pricing. Why all the fuss now? They just got clumsy and got caught. It's not just Depot, it's Corporate Express, OfficeMax and even Staples are at it, they say.

They may or may not be right, but just consider the following summary of defects in Depot's pricing policies and you tell me if these have been happening on such a wide and massive scale before?

 

What our analysts and whistleblower ex-Depot David Sherwin (see Save Dave campaign update below) plus inside contacts tell us are as follows:

 

  1. Indiscriminately varying prices agreed in guaranteed fixed price contracts with no prior communication. Cases of list prices changed up to 30 times a year.
  2. Quoting discontinued items in the contract core list and substituting higher priced items. In Georgia 10% of 2000+ item core list or 200+ sku's were discontinued without communication.
  3. Creating confusion for users by using multiple codes and multiple units of measure for the same item with different and higher  prices applied
  4. Manipulating cost prices by demanding that manufacturers increase prices by say 10% on own brand items and provide a 10% rebate to compensate. The purpose to justify price increases on State contracts. The rebates which should be declared, are not, effectively increasing profits by substantial amounts.
  5. Persuading contract customers to move from 'fixed discount off list' to 'fixed discount off web prices' (known as Option 2 pricing) with the promise that net prices are lower. In fact prices are 3-5% higher. In the massive $700m US communities contract even a 3% overcharge would cost an extra $21Mpa.
  6. Offering prebates which average 5% of contract value up front i.e. $200,000 on a 2 yr $2Mpa contract.
  7. Flagrant use of 'Bait and Switch' tactics highlighted in Rick Marlette's (Pic right) Georgia Report last January, best illustrated by the example of the ever popular core item: 12x9 Catalogue Envelope. Priced low on the bid core list as $3.88/box, there were no sales recorded on the purchases analysis for Sep'07. This was because the Depot code for this item had been deliberately discontinued. In its place Depot had allocated a new code at a higher price of $5.19. Purchases in Sept were 338 bxs at an extra $1.19/bx or $400 on one item in one month or nearly $5000/year. If this were typical of the 200 items discontinued from  the core list then we are talking $1M/pa in Georgia alone.
  8. Inconsistent and misleading purchasing routines.
    • In Georgia 300 Core items not listed in catalogs causing users to seek higher priced alternatives
    • 800 of core items not available via online ordering causing user to use higher priced items off the web at much higher prices

In my not experience, there has never been such widespread and flagrant and fraudulent like behaviour. This is not just an US experience as many observers seem to think. These defects are systemic and occurring worldwide with Depot supplied contracts.

 

Dealers must do their homework…research those target prospects who are supplied by Depot…go in and do a personalised single source supply pitch and in the process expose Depot's dodgy dealings by cross referencing the reports from Georgia, California, Florida and US Communities. They are very relevant…why not offer a free audit of their Depot invoices.

 

The Depot 3: Conspiracy at *US Communities?

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Finally, before we introduce the new 'Depot Demise Diary' we wish to highlight what will probably be Depot's final downfall: the alleged conspiracy  going on with the US Communities (USC) Contract. Whistleblower and ex-Depot senior account manager Sherwin reckons this is the BIG FRAUD.

 

The 'overcharging' strategy of misleading users from 'list price discounts' to 'website based discounting' on the promise of lower prices, when in effect they are higher, is costing the US Communities' contracted local government and state customers $Millions pa…and of course the unsuspecting taxpayers.

 

The perception is, that Depot pulls all the strings on the USC office supply contract worth a massive $700m pa. This is not surprising given that their program manager Kevin Juhring, was  the Director of State and Local Government at Depot responsible for setting up the USC contract details. Moreover, Juhring has been joined by 2 of his ex colleagues Paul Tarragno and Chris Robb at Depot, who both reported to him and surely knew details of Depot's USC scam. Were the 'Depot 3' planted there in a conspiratorial move?

 

Whatever the truth and we will draw it out, this is a massive conflict of interest fueled by the fact that US Communities picks up a rebate of at least 1% of Office Depot purchases or $7M/year. Obviously, it is in both parties interests to see this continue and be maximised. We feel the US Communities books need to be audited to see what happens to these funds given low operating costs, its apparent non-profit status and its doubtful activities that are highlighted in the next paragraph.

 

There are big doubts too about the integrity of the general manager Steve Hamill at USC given that he was responsible for recruiting the 'Depot 3' and his behaviour and reaction to the article published in Frost Bites on 28 June re 'Public agency, private benefit' dated  May 22, 2008 by Brian Joseph. This is a story that is probably going to run and run and be the ruin of Depot.

 

Depot Demise Diary
Introducing a weekly review of the deceit, denials, dodgy dealings, decline and destruction of a once great brand

Will Moody's downgrade Depot?
Credit ratings agency Moody's Investors Service on Thursday put the ratings for office-supply retailer Office Depot Inc. on review for a possible downgrade.

Moody's said its decision to review Office Depot stems from its operating performance in early 2008. "Office Depot continues to have difficulty regaining traction in its key
California and Florida markets, and there appears to be limited visibility with respect to when these markets will recover," said Moody's Senior Analyst Charlie O'Shea in a statement.

The company's senior unsecured rating is currently at "Baa3," one notch above non-investment grade.

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Depot defies law and management conceals alleged convicted arsonist from Florida schools contract
Depot  is not sure what to do about Matt Horne, the alleged convicted arsonist, because his manager knew his siuation and placed him with school accounts. They can't fire Horne without implicating Jim Olsen, John Riley, Jim Pollman and Bob Cetina who knew of Horne's history.

Bob Cetina is VP overall government/public sector and US Communities business, he signed the last version of the LA County/US Communities Contract in November of 2005, for the contract effective from 2 January 2006

Lee County drop Depot/US Communities
We have just heard from our sources in Florida, that the Lee County School Board a $2.8m annual account, and for 7 years a US Communities /Office Depot customer has washed their hands of US Communities and are now going out to a competetive bid. Robert George, Procurement Director, is to be commended for his quick reaction to the ODgate Scandal

Has Depot deceived SEC and stockholders by not declaring contingent liability on State and Local Government business worth $1.2BN?

We have just learned that a confidential report has been forwarded to the Securities Exchange Commission's, enforcement division by Florida whistleblower David Sherwin.

 

Though, the report is highly confidential we have learned some of what it contains. The report alleges that Depot has not disclosed as required by law the contigent liabilities that result from the investigations and audits of its government contract business. Additionally, we have learned that Depot has minimized and trivialized the possible future outcomes of these investigations and audits to accountants certifying the accuracy of the Office Depot financial statements. Both of these allegations if proven, will open up the company to Class Action Law suits by the stockholders, and severe sanctions by the enforcement arm of the Securities and Exchange Commission.

Motley Fool rates Office Depot worst stock in the world
Office Depot and a hole-punched performance ... Worst Stock in the CAPS world. Office Depot said that its Q2 like-for-like sales declined close to 10% because of the lousy economy. Margins fell at least 4%/points, and Standard & Poor's says it may downgrade the retailer's debt.

Today's South Florida Sun-Sentinel Report
$100M contracts to be switched from Depot?
The Florida Attorney General's Office is looking into allegations against Office Depot of "bait and switch overcharging" of state and local agencies by setting low prices on supplies, then publishing catalog and Web site information leading buyers to higher-priced alternatives.

The civil investigation is another drag on a company already trying to bolster its slumping business while facing a worsening economy. Combined with steps other states have taken, it raises the question of whether the issue of overcharges could cost Office Depot additional business through government contracts.

"We have taken each of these challenges seriously," Steve Schmidt (pic above), Office Depot's president of BSD, said Thursday. "There is nothing more important than the reputation and credibility of our pricing." He said the company will "proactively and aggressively" defend itself against such "unjustified claims."

Office Depot has contracts with 21 states, but also does business with hundreds of state and government agencies in almost every state, Schmidt said.

Please click on Sun-Sentinel to read full report. Listed in the report were the values of contracts wiith Depot which means over $100m worth of state contracts are at risk for Depot…just for starters.

These include contracts Florida $41M; Georgia $35M; North Carolina $17M; Nebraska $3M; and California $25M. On top of this we have the investigations relating to the US Communities contract worth $700M. That's a cool $800M worth of business at risk for Depot. As Sherwin highlights above where is the statement of contingent liability?

URGENT APPEAL TO DEALERS
Save Dave Campaign
 

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On behalf of whistleblower ex-Depot David Sherwin we would like to thank those independents that contributed to the Save Dave campaign….7 dealers have contributed to date. As we know he is carrying on his fight under dire circumstances, from his besieged apartment in Fort Myers. Depot is going to great lengths to silence him, certainly we should all rally around him and support his courageous efforts.

Please help Sherwin continue his investigations and case against Office Depot by making a donation to his cause. We re-publish an extract from Georgia dealer Chip Jones of Minton Jones made on 23 June:

"The Office Depot trouble in Florida is extremely serious in nature. 

 

What I am asking is to help support Dave with a financial contribution.  Something to help him continue the fight and to show our support for him.   I realize that recent economic developments in the US may have given us all reason for concern, but I am hoping that many of you are willing to help out.  I sent Dave a check for $500.   I am asking my fellow independents that are able, to contribute any amount that they feel comfortable with.  I am asking for amounts between $100 to $500 dollars, but certainly any amount either below or above that will be very helpful.   He needs our financial support.  PLEASE SHOW YOUR SUPPORT TODAY!!

 

If you choose to contribute, I have set up two ways to do so.  You can either mail your check directly to Dave or you can mail it to me.  Which every you feel more comfortable with is fine.  Here is the contact information.

 

Please make cheques payable to David Sherwin and send to:

 

David Sherwin                            
1735 BrantleyRoad                   

Apartment #1410                                           

Ft Myers, FL 33907
USA

 

Whether you choose to send a donation or not,  It would really help his spirits for us to e-mail him to show our support and to thank him for his tremendous work.   davidsherwin2@comcast.net  or mail a note with your check.

 

Thank you for your support.  IF at any time you wish to talk to me please feel free."

 

Chip Jones cjones@mintonjones.com

1280 Oakbrook Drive

            Norcross, GA 30093 USA

(001) 888-817-7907  ext 118

(001) 404-375-5239 cell

*U.S. Communities Government Purchasing Alliance is a nonprofit instrumentality of government that assists local and state government agencies, school districts (K-12), higher education, and nonprofits in reducing the cost of purchased goods through pooling the purchasing power of public agencies nationwide. This is accomplished through competitively solicited contracts for quality products through lead public agencies.

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