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Accounting News Roundup: Mandatory Arbitration and Too Many Managers | 09.09.16

Mandatory arbitration

Alison Frankel of Reuters reports that the question of whether mandatory arbitration clauses in employment contracts may be soon before the Supreme Court.

How big is the issue of whether employers can bar workers from acting as a group to enforce their rights? So big that on Thursday, the accounting firm Ernst & Young became the second employer in the past seven days to ask the U.S. Supreme Court to resolve a deep split between the federal appellate courts on the legality of mandatory arbitration clauses that require employees to arbitrate disputes individually.

As Frankel noted, and as anyone who's followed the battle in the courts knows, it's been divisive:

Ernst & Young filed its petition Thursday for Supreme Court review, less than three weeks after a split panel at the 9th U.S. Circuit Court of Appeals determined that the company’s mandatory arbitration clause violated the National Labor Relations Act. The 9th Circuit majority’s reasoning paralleled analysis from the 7th Circuit, which ruled in May that Epic Systems’ individual arbitration requirement improperly prohibited employees from banding together in an action against their employer.

The 7th and 9th Circuits said, in effect, that when workers’ rights under federal labor laws are in tension with the Federal Arbitration Act’s deference to arbitration, the National Labor Relations Act prevails. Their rulings contrasted with precedent from the 2nd, 5th and 8th Circuits, all of which have held in the past three years that arbitration law, rather than labor laws, governs the apparent discrepancy between the statutes.‎

Frankel writes that it's rare for SCOTUS to grant certiorari to two cases asking for resolution of the same question, but it has done before. EY argued that its case is best suited to heard before SCOTUS because "it embodies the split among the circuits," noting a dissent from 9th Circuit Judge Sandra Ikuta.

We've been covering this issue at GC for quite some time, so it's good to see that a resolution might be reached on it once and for all.

Too many managers

Late last year I wrote a post about accounting firms getting rid of managers. My general premise was, and still is, that there are too many managers and that these individuals should be project managers rather than accountants promoted into manager titles.

Accountants want to do things that they are good at and managing people is not a thing most accountants are good at doing. I'm not saying that at some level, employees shouldn't have soft skills and other management training, I'm just saying that a "manager" should be a very different position within a firm than it currently is. Likewise, businesses, governments, nonprofits and any other type of employer, could get by with fewer managers.     

And there are numbers behind this idea. Harvard Business Review did some rough math and reports the "cost of excess bureaucracy in the U.S. economy amounts to more than $3 trillion in lost economic output, or about 17% of GDP." You can and should read that HBR article for more on their findings, however, Hamilton Nolan's account is perfect and succinct:

That is a lot of money. Even half of that is a lot of money. Even a third of that is a lot of money. Even if you assume that these rough calculations are too generous, you must still admit that the cold hard facts of economics show that our nation has much to gain by firing half of the fucking managers sitting on their asses in conference rooms talking to each other. You must admit it is in the national interest to do so. You must admit that firing half of the fucking managers in this country is the patriotic thing to do.

Get a real job, management hippies.

Related: This is a really good time to quit your job

Has Donald Trump released his tax returns?

Nope! And American University tax professor Donald Williamson has alternative theory as to why:

[P]ublicly releasing Trump’s returns will create a media feeding frenzy where the IRS could simply sit back and have the TV networks and popular press examine every figure and statement on the returns, perhaps raising issues that the IRS would otherwise never have considered. At that point, the IRS could use any journalist or crowdsourced information in a case against Trump (or anyone for that matter).

Considering the fact that the IRS is still woefully understaffed, this strikes me as a pretty sound hunch.

Elsewhere, here's a letter to the editor of the Pittsburgh Post-Gazette:

Donald Trump is just plain wrong when he states that the American people don’t care about his tax returns. The majority do. As an accountant, I particularly do.

I’d like to see how the super wealthy use the existing code to pay/​avoid/​evade their fair share of taxes. Then when politicians make or propose changes to the code, I can determine who really benefits and who is harmed. Capiche?

Man, accountants can get serious about this stuff.

Accountants behaving badly

Back in June, Lisa McAlister, the former chief accounting officer of American Realty Capital Partners, pleaded guilty to securities fraud and other charges.  She's been cooperating with authorities and now her former boss, Brian Block, is in some trouble:

The former finance head of real-estate investment company American Realty Capital Partners committed accounting fraud when he used a metric that didn’t comply with Generally Accepted Accounting Principles and inflated the company’s results, authorities said Thursday.

Preet Bharara, the U.S. Attorney for the Southern District of New York, and William Sweeney, assistant director-in-charge of the New York Office of the FBI, said Brian Block, American Realty’s former chief financial officer, was charged with fraudulently inflating a key metric used to measure the performance of his company, a publicly traded real-estate investment trust.

Right before ARCP released its Q2 2014 results, authorities told Block and McAlister that the key metric — adjusted funds from operations, or AFFO — was "erroneously inflated" and then they promptly did nothing about it.

"Despite his knowledge of a material error in ARCP’s previous filings with the SEC, Brian Block took no steps to advise the Audit Committee of ARCP’s Board of Directors, or ARCP’s outside auditors, of the error in the first quarter 10-Q,” said Bharara. “Moreover, Block, McAlister, and [another employee] then knowingly facilitated the use of the same materially misleading calculations in” later filings.

Block is facing prison if found guilty.

Previously, on Going Concern…

Megan Lewczyk wrote about digital natives getting no love in accounting firms.

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