Costco caught a $7 billion diaper sale fraud last year, according to an internal investigation that showed the retailer has a history of abusing its business and employees.
The report by Costco’s independent auditors is the first public look at Costco’s business practices since auditors reported that the retailer engaged in a massive fraud last fall, including a $5 billion fraud in a single year that stole nearly $5.6 billion from the company.
The Costco audit was conducted by the U.S. Department of Justice and the Securities and Exchange Commission, but the company declined to provide details on the scope of the fraud.
The audit was released on Wednesday after months of public comments, including by Costco CEO Brian Wieser, who accused Costco of hiding its fraud, which included using counterfeit diapers and stealing more than $7 million from the grocery chain.
The audits, which cost Costco $3.5 billion in total, also revealed that the company failed to monitor its inventory and that employees had engaged in questionable behavior.
The auditors found that a large percentage of the $7.1 billion in fraudulent sales were purchased by people with no idea they were buying diapers, a practice called diaper theft.
The audit found that at least 2,974 people were charged with crimes in the United States in 2017 and more than 1,600 people were criminally charged.
The company also failed to adequately verify sales and refunds and to monitor inventory and to investigate and hold accountable employees who engaged in diaper theft, the audit said.
Costco is a subsidiary of Costco Wholesale Corp.
The U.K.-based retailer, which has more than 3,500 stores in 26 countries, said in a statement that it is working with federal law enforcement and is committed to protecting its customers and employees.
“The audited financial statements reflect that Costco is in compliance with all applicable accounting standards,” the statement said.
“We will continue to monitor the performance of our operations and the business environment and will work to ensure that the fraud is corrected.”
Costco said it is currently working with the federal government and other law enforcement officials to address the findings.