Kmart starts internal investigation

Kmart filed for bankruptcy earlier this week

Kmart, the second biggest US discount retailer after Wal-Mart, has begun an internal investigation into its accounting procedures after receiving an anonymous letter expressing concern about its accounting procedures.

The letter has been referred to the audit committee of the board of directors

Kmart's statement

The company, which filed for Chapter 11 bankruptcy protection earlier this week, said the letter claimed to be from a group of employees.

The investigation follows the mounting controversy surrounding accounting procedures at the collapsed energy giant Enron.

The retailer said the letter was addressed to the Securities and Exchange Commission (SEC), Kmart's auditors and the company's board of directors, but did not say when the letter was received.

Bringing in outside help

"The letter has been referred to the audit committee of the board of directors, which promptly engaged outside counsel and accounting consultants to conduct an independent investigation," the company said in a news release.

After receiving the letter, Kmart said it contacted the SEC to notify it about its own investigation.

Kmart added that the US regulator had also authorised a private investigation, with which Kmart would cooperate fully.

The SEC has declined to comment on the issue.

Kmart's board of directors has hired law firm Skadden, Arps, Slate Meagher & Flom and accountants Deloitte & Touche to help with the investigation.

Kmart's auditors are PricewaterhouseCoopers, according to documents filed with government regulators.

The company's shares ended down eight cents at 85 cents on the New York Stock Exchange on Friday.

Delicate issue

The disclosure comes amid heightened sensitivity about US accounting issues, following questionable practices employed by Enron.

Enron's auditor Andersen has also come under fire and stands accused of shredding documents.

About 11 US Congressional committees, the SEC and the US Department of Justice are investigating the Enron affair.

Kmart filed on Tuesday for bankruptcy protection after its latest earnings figures sparked downgrades by credit-rating agencies and a stock sell-off.

Chapter 11 bankruptcy allows companies to continue operations while formulating a plan to repay its creditors.

Most of Kmart's outlets are open as usual and its website still promises to deliver purchased goods.