Saks Inc. asked three of its top executives, including its chief accounting officer, to resign, following an investigation by its audit committee related to the improper collection of vendor markdown allowances in one of its merchandising divisions.

The company this week asked for resignations from chief accounting officer Donald Wright and from Brian Martin, a senior vice president who served as general counsel during a 2002 investigation into the same issue. Saks Fifth Avenue chief administrative officer Donald Watros was also asked to resign with forfeiture of vested options and other financial penalties.

The shakeup follows the completion of an audit committee investigation that began in March related to alleged improper collections of vendor markdown allowances in one of Saks Fifth Avenue's six merchandising divisions. The audit committee found that during the fiscal years from 1999 to 2003, improperly collected markdown allowances totaled about $20 million. The company, which said that it will start work to determine if any markdown allowances were improperly collected before fiscal 1999, has said that it will reimburse or otherwise compensate the affected vendors.

In addition to the resignations, the board said that employees who were directly involved in the over-collection of vendor allowances are being asked to resign or are being terminated, and employees who failed to adequately supervise those directly involved in the over-collections are receiving disciplinary actions ranging from termination to reprimand.

The audit committee said that no other senior corporate-level officers were found to have culpability for the over-collection, the failure of a 2002 internal investigation into the same issue, or the accounting and disclosure issues identified during the recently concluded investigation.

However, the board criticized the quality of communication to the audit committee and the follow-up by several members of senior management with respect to the vendor markdown allowances, and said that it would reduce or eliminate bonuses for some executives, including the chief executive officer and chief financial officer.

The company, which said that it will name a new CAO, upgraded that post to report directly to the CEO and the audit committee. CFO Douglas Coltharp will no longer have responsibility for accounting or financial reporting matters, but will continue to have responsibility for treasury, strategic planning, external development and real estate. The board also asked the company's management to develop an action plan for enhanced ethics training and improved awareness of the company's compliance and ethics hotline.

The Securities and Exchange Commission and the U.S Attorney's Office are both investigating the issue. Saks said that it is cooperating fully with both investigations. Saks has yet to file its 2004 annual report, which was due in April. The company said that it expects to complete its work in connection with the restatement of its financial statements for fiscal 1999 through the third quarter of fiscal 2004 and the 2004 Form 10-K by Sept. 1. The company expects to file its quarterly report for the fiscal quarter ended April 30 around the same time.

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