Rats! Family Dollar Dinged on Sanitation

Family Dollar Stores is paying $41.6 million to settle charges that the discount retailer ignored a rat infestation at one of its distribution centers and allowed contaminated goods to go to its retail stores — one of the ickier examples of corporate culture gone wrong that we’ve seen lately.

The settlement, announced Tuesday by the Justice Department, has Family Dollar pleading guilty to one count of “causing FDA-regulated products to become adulterated while being held under insanitary conditions,” which is only a misdemeanor but still sounds pretty gross to me. The company also agreed to pay $41.6 million in civil forfeiture, plus five years of probation and a three-year corporate integrity agreement so the Justice Department can keep an eye on its compliance program. 

No independent monitor, and apparently no CCO certification of the compliance program either.

So what happened? As described in the plea agreement, the offending was in West Memphis, Ark., and supplied roughly 400 Family Dollar stores across the southern United States. In 2019 the center switched from using conveyor belts to move supplies around the building to employees using forklifts to move pallets of goods. That led to more food and other items spilled on the floor, and more holes in the structure as forklifts bumped into loading dock doors. Which meant more food readily available for rats and other vermin, and more ways for them to get inside.

By August 2020, company employees started hearing complaints about “mouse and pest issues” with deliveries from the West Memphis distribution center. By the end of that year, stores “again reported receiving rodents and rodent-damaged products” in their shipments from West Memphis. (Again, gross.) By the start of 2021, employees knew the problem was bad enough that it violated food safety standards from the Food & Drug Administration.

Matters got worse throughout 2021. State health inspectors cited the West Memphis center that spring for ineffective measures to exclude vermin. Roof rats (seriously, they’re a thing?) had taken up residence in the center by that summer. At least one employee filed an OSHA complaint about unsafe working conditions that August. A regulatory compliance specialist toured the facility and circulated a report that “rodent infestation is a major issue.” 

FDA inspectors finally arrived in January 2022, finding rodents, rodent droppings, or “rodent odors” throughout the building. Family Dollar closed the center that month, fumigated the whole place (“resulting in a reported extermination of 1,270 rodents”), and began a recall of all the center’s goods in February 2022.

Rebooting Its Compliance Culture

The Justice Department did praise Family Dollar for its extensive cooperation during the ensuing investigation. That cooperation included the usual stuff, such as conducting an internal investigation and then providing those results to the feds, making detailed factual presentations to prosecutors, and “identifying issues and facts that would likely be of interest to the government proactively.” 

Family Dollar also engaged in extensive remediation of its compliance function. (One side lesson worth mentioning is the importance of remediating your compliance program while investigations are still ongoing.) As outlined in a press release the company published Tuesday, that includes:

• Hiring a new chief ethics and compliance officer (John Scudder, who arrived last fall and previously was a senior compliance exec at Walmart);
• Hiring a chief legal officer “with expertise and experience building and enhancing corporate compliance programs” (Jonathan Leiken, hired last summer);
• Hiring various other regulatory and safety compliance executives, and putting a sanitation compliance manager in every Family Dollar distribution center;
• Additional controls and safety training, plus monitoring and testing of the company’s sanitation compliance efforts;
• Independent audits of all the company’s distribution centers, so that all of them are now certified as meeting “Good Distribution Practices” for pharmaceutical handlers as defined by the World Health Organization.

Family Dollar also closed the West Memphis center and gave it a $100 million overhaul, and now plans to reopen the facility later this year. 

And if you’re wondering about the company’s tone at the top, CEO Rick Dreiling had this to say: 

“When I joined Dollar Tree’s Board of Directors in March 2022, I was very disappointed to learn about these unacceptable issues at one of Family Dollar’s facilities. Since that time and even more directly when I assumed the role of CEO, we have worked diligently to help Family Dollar resolve this historical matter and significantly enhance our policies, procedures, and physical facilities to ensure it is not repeated.”

Obviously you’d expect any CEO of any company to say something like that after such an embarrassing mess, but it does seem like Dreiling is sincere and he’s followed up with concrete actions and personnel hires, so good for him.