Office Depot 2007 Annual Report Download - page 41

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39
Internal Control Over Financial Reporting
(a) Management’s Report on Internal Control Over Financial Reporting
See Item 15(a)1 in Part IV.
(b) Report of the Independent Registered Public Accounting Firm
See Item 15(a)1 in Part IV.
(c) Changes in Internal Controls
During the fourth quarter of fiscal year 2007, we identified a material weakness that existed prior to the quarter
ended September 29, 2007 and engaged in a review of our internal control over financial reporting as described
below. Based on that review, our management believes that, during the fourth quarter of fiscal year 2007 there were
changes in our internal control over financial reporting, as described below, that have materially affected, or are
reasonably likely to materially affect, those controls.
Remediation of Previously Reported Material Weakness
During the quarter ended September 29, 2007, we identified a material weakness that affected our internal control
over financial reporting. The material weakness was identified as a result of an internal investigation, which arose
from a whistleblower complaint. The preliminary results of this investigation were brought to the attention of the
Audit Committee who engaged counsel and commenced an independent investigation of the matter. The
investigation revealed that certain types of vendor arrangements were not recognized as a reduction to cost of goods
sold in the correct fiscal period. This material weakness resulted from deficiencies in the design of internal controls
related to ensuring that complete and accurate documentation is provided to individuals responsible for the proper
recognition of vendor program funds.
Since identifying this weakness, we have developed and successfully implemented a remediation plan to address this
material weakness. Management has taken the following actions to improve the internal controls over financial
reporting:
•Certain employees including senior management within our merchandising department were terminated.
•A new control was developed and implemented whereby all merchants and their supervisors are required to
certify that they have no awareness of any agreements with vendors outside of those for which
documentation has been provided to individuals responsible for determining the proper recognition of vendor
program funds.
•Additional training was provided to members of the merchandising department on our Code of Ethical
Behavior, the integrity of financial reporting and internal controls over financial reporting.
•Completed transaction–specific questionnaires addressing relevant accounting matters relating to
substantially all transactions for the period. Results were reviewed for appropriate accounting treatment.
•A post transaction audit process has been implemented and was performed on all vendor program
transactions of the type that gave rise to the accounting error to ensure that the reduction in cost of goods sold
occurred in the correct fiscal period. A similar process will be used in future periods.