Author: GoingConcern

Pressure from CEOs More Likely to Lead CFO Shenanigans Than Monetary Gain

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

A recent study, “Why Do CFOs Become Involved in Material Accounting Manipulations,” by researchers at the University of Pittsburgh and the University of Washington attempts to answer just this question. Their finding? Pressure from the companies’ CEOs, more than the possibility of financial gain, tends to drive the actions of crooked CFOs.

Of course, the researchers couldn’t actually divine the motivations that drove the CFOs who manipulated numbers. Instead, they reviewed a group of firms subject to SEC enforcement, analyzing the role of the CFOs, as well as the costs they incurred and any benefits they gained from their actions.

They found – not surprisingly – that the CFOs involved faced stiff penalties for their actions. More than half of the CFOs (54 percent) employed by the nearly 300 firms in the sample that were charged by the SEC for accounting manipulation were prohibited from serving as an officer, director or accountant with a public company in the future. About 48 percent of CFOs were fined as a result of their wrongdoing, with a median fine of $50,000. A small number – about 4 percent – also faced criminal charges. Clearly, monkeying with the numbers can be quite costly for CFOs.


On the other hand, the CFOs that engaged shady number crunching didn’t have significantly higher equity incentives than CFOs in the control sample. That means the CFOs involved in misstatements took on a lot of risk, yet couldn’t expect to come out much further ahead financially than their counterparts at law-abiding firms.

Conversely, the CEOs of firms in trouble exhibited both greater power and equity incentive than CEOs of control firms. For instance, these CEOs were more likely to be company founders and to serve as chair of their boards than the heads of the other firms. “This evidence is also consistent with the pressured CFO explanation; that material accounting manipulations are more likely in the presence of powerful CEOs,” the researchers write.

What’s more, CFO turnover jumped during the three years before the misstatements occurred. That suggests that at least some CFOs either left or lost their jobs because they refused to participate in the manipulation.

The SEC also seems to have taken note of the larger role that CEOs, rather than CFOs, typically played in the schemes. When the researchers examined 188 companies in which both the CFO and CEO were charged with manipulating numbers, they found that the SEC had charged 18 percent of CFOs with orchestrating the schemes. When it came to CEOs, however, 32 percent were charged – almost double the CFO number.

Moreover, when the SEC charged just the CFO with wrongdoing, 30 percent of them benefited financially. That’s a lot, but it’s significantly less than the 46 percent of CEOs who were charged and also gained financially.

Given these findings, are there changes that could reduce accounting shenanigans? To be sure, the research doesn’t mean that CFOs who cook the books can simply blame their actions on their bosses; clearly they could have acted differently, as difficult as doing so might have been. The findings do suggest, however, that one step to reducing the opportunity for wrongdoing would be to provide CFOs with greater independence from their CEOs. One way to accomplish this would be to expect greater participation from corporate boards or audit committees when it comes to hiring and evaluating their firms’ chief financial officers.

As Investigation Concludes, Allegations Against KB Home Remain Anyone’s Guess

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Finally some good news for KB Home.

The homebuilder said the Securities and Exchange Commission has concluded its investigation into the company’s accounting and disclosures and does not plan to recommend any enforcement action. The letter from the regulator concludes the SEC’s investigation, which began in October 2009.

“We are pleased to announce that the SEC has concluded its investigation,” said Jeffrey Mezger, president and chief executive officer of KB Home, in a statement.

There are no details about the nature of the allegations.


Same was true in October 2009 when the company first announced in its quarterly report that the staff of the SEC notified the company that a formal order of investigation had been issued regarding possible accounting and disclosure issues. At the time, it stressed that the probe should not be construed as an indication by the SEC that there has been any violation of the federal securities laws.

And this is exactly how it turned out.

What were the allegations? What prompted the SEC to look into the matter? Was it a disgruntled whistle-blower?

The answers would be instructive to other companies that could wind up as targets of SEC probes. Guess we’ll never know.

The good news here is that the SEC informed the company that the investigation was closed. Sounds basic, right?

Believe it or not until a few years ago the regulator did not often communicate to companies under investigation that the probe was completed and that no further action would be taken, leaving the company hanging and suspicion hovering for all potential customers and investors to speculate.

Their attitude at the time was that as a policy, the Commission does not disclose the existence of an investigation in the first place, so it typically won’t announce that one has ended.

KB Home, however, is no stranger to controversy.

The company was embroiled in the options backdating scandal. In April, former chief executive officer Bruce Karatz was convicted by a federal jury of four felony counts, including two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission. He was acquitted on 16 other charges.

In September 2008, Karatz agreed to pay $7.2 million to settle civil charges for his role in the stock-option backdating scheme that benefitted himself and other KB Home officers and employees.

Last November, a Texas homeowner filed a class-action lawsuit today against KB Home, Countrywide Financial and LandSafe Appraisal Services, claiming the three conspired to rig housing prices in Texas and Colorado, costing home purchasers millions of dollars and pushing homeowners into dangerous loans.

Earlier, a lawsuit filed against the same parties alleged they fraudulently inflated sales prices of KB homes in Arizona and Nevada.

Singapore Stock Exchange Weighs Mandatory Sustainability Reporting

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Moves are underway around the world to define and mandate reporting on the sustainability of companies’ operations. Using the aftermath of the crisis as a cover, securities regulators, industry bodies such as FASB and IASB and investor groups are looking at how companies can usefully report on the sustainability – environmental, operational and financial – of their businesses.


The latest move comes from Singapore where the stock exchange SGX has issued a policy paper on whether or nor to mandate sustainability reporting for all companies listed on the exchange. The policy paper calls for expressions from the public prior to a deadline of October 29. SGX does not say whether or not it will introduce mandatory sustainability reporting, but it hints that it might.

“Investors who lead world opinion expect listed companies to be accountable for their financial results, how they achieve the results, and what impact they have on the communities within which they operate. SGX encourages more listed companies to commit to sustainability practices and reporting,” it says in the preamble to the policy document.

The move comes a few weeks after the creation of the International Integrated Reporting Committee (IIRC), a working group of companies, investors and industry bodies to find ways to improve corporate reporting.

The scope of the IIRC is wider than sustainability, but sustainability is nevertheless likely to form a major part of any upheaval in the reporting process. Indeed, no less a body than the G20 has said that it wants changes to the global system of reporting so that all company reports follow the same global standard. Such an overhaul is likely to be very protracted. But in the meantime, it looks as if sustainability reports will form part of the eventual package. CFOs who are still behind the curve had better start planning now.

Here’s Why Facebook Should Buy ING Direct

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

It was revealed this week that Facebook is valued by its private shareholders at over $33 billion, more than Ebay, Yahoo and Dell. For a private company with little more than a year of revenue this is extraordinary.

When the company goes public it will have a hard job living up to this valuation without a significant increase in revenue streams.

One option may be for it to do a transformational transaction prior to its listing. In this way it could incorporate a pumped up revenue stream into its high IPO valuation. One such deal could be for it to buy ING Direct US, the largest online bank in the country.


Under the terms of the Dutch government bail out, ING has to sell ING Direct in the US and Canada by 2012. They will have no shortage of bidders from the financial world, but could it make sense for a non-bank to actually buy the company? And if so, what about Facebook?

Half a billion people now live their online lives through Facebook. It has huge brand value and customer loyalty. For it to generate revenue streams it needs to do more than just offer up ads and sell games.

To get from being a social network site to a commercial network site it needs to drive business, and one of the biggest impediments to online retail business is payments. By owning a bank-and thus a payment platform–Facebook could make it very easy to transact online.

Clearly there would be lots of legal hurdles for such a deal to happen, not least because regulators do not like non-banks owning banks. More specifically, Facebook has had difficulties in the past respecting people’s privacy.

But by allying the huge number of people on the site with an easy to use payments and banking business, Facebook could revolutionize its business and the way that 500 million conduct personal commercial activities on the web.

It could also learn from the clever people at ING Direct about how to protect customer data. It may be a long shot, but the two companies could complement each other very well.

Automatic IRA Act Will Be a Boon for Financial Services Companies; Small Business…Not So Much

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

There’s pending legislation in the Senate to require even tiny businesses that don’t already have a retirement plan to create an IRA for employees. Whether or not it will do much to help people save for their retirement in a meaningful way is debatable.

The bill, the Automatic IRA Act of 2010, introduced by Senator Jeff Bingaman (D-New Mexico) mandates that businesses establish individual IRA accounts for all employees. Contributions would come from payroll deductions, so employers wouldn’t have to cough up any money themselves, and employees would be able to opt out. Accounts would be managed by banks, mutual funds, and insurance companies that already manage this type of account.


Also employers would have no ERISA fiduciary liability as long as they used a provider on a government-approved list. And there’s a default investment structure: a principal preservation fund for balances of less than $5,000 and a lifecycle fund for bigger accounts.

Seems reasonable, until you drill down further. First there’s the infinitesimal default deferral rate. That’s 3 percent. As a result, since employers aren’t even allowed a match, it’s unlikely employees will be able to save a whole lot. Also employers get a measly $250 tax credit to cover administrative costs.

Mostly this bill will be a potential goldmine for financial services companies, at least those on the official government list of approved providers. While each account will be small in aggregate, the amount will come to quite an attractive proposition for these businesses.

If there were any doubt about just what a windfall this could be, consider the provision for a gradual phase-in of the law. For example, in the first year, the bill will apply only to businesses with 100 or more employees. It won’t cover companies with less than 10 employees until year four.

But that provision wasn’t put there with the company owner in mind. Instead it’s all about the retirement services providers to help them “prepare for a significant expansion in the number of IRA accounts.”

To be sure, something needs to be done to boost the retirement savings rate in this country. With this bill, however, the real beneficiaries will be the usual suspects–big financial services companies.

Job of the Day: Mimecast Needs a Financial Analyst

Mimecast is a fast growing Software as a Service company that provides Unified Email Management services, currently comprising of email security and data leak prevention, archiving and continuity solutions. They are looking for an experienced professional to fill a Financial Analyst role in Boston.

This position will provide a broad range of financial and analytical support to the controller and the sales and marketing team.

Qualifications include 3-5 years of experience with ERP systems exposure preferred.


Company: Mimecast

Title: Financial Analyst

Location: Boston

Compensation: Depends on experience

Description: The Financial Analyst will be responsible for providing a broad range of financial and analytical support services to the Controller and to sales and marketing management.

Responsibilities: To assist in the preparation of the monthly accounts and KPI reports – to include the reconciliation of key control accounts (up to 25% of time in total); To assist in the preparation of budgets, forecasts and cash flow projections; To investigate, diagnose and rectify reporting anomalies; To provide a range of reports and analysis for sales and marketing management; To track, report and explain performance trends in finance and non-financial measures; To analyze sales and business development pricing proposals; Assist with the definition of appropriate metrics and reporting; To provide expense variance analysis reports; Other ad hoc duties and project

Qualifications/Skills: BS in accounting or finance; 5 years of experience in financial analysis role; Excellent logic and diagnostic skills; Good organizational and analytical skills; Knowledge of ERP systems – Netsuite the preferred system (in use throughout the Group); Highly competent in Microsoft Office; High standards of work.

See the entire description over at the GC Career Center and visit the main page for all your job search needs.

Job of the Day: Zoosk Needs an Accounting Manager

Online dating service Zoosk is looking for an experienced professional to fill an Accounting Manager role in San Francisco.

Primary responsibilities include analyzing complex accounting data, ensuring appropriate alignment to chart of accounts, departmental, and company coding. In addition, the position interprets and applies GAAP hierarchy and standards as well as the company’s guiding principles to entries and reconciliations..

Qualifications include 7+ years of experience with intermediate Excel skills, including pivot tables is required. QuickBooks experience is a plus.


Company: Zoosk Inc.

Title: Accounting Manager

Location: San Francisco

Compensation: Depends on experience

Description: The Accounting Manager will report to the Director of Finance. The individual in this role analyzes complex accounting data, and ensures appropriate alignment to chart of accounts, departmental, and company coding. The position interprets and applies GAAP hierarchy and standards as well as the company’s guiding principles to entries and reconciliations. General accounting responsibilities include: revenue recognition, accounts payable, accounts receivable, bank reconciliations, month-end preparation of journal entries, accounts analysis, accounts reconciliation and fixed asset accounting, etc.

Responsibilities: Manage general accounting functions such as Revenue Recognition, Accounts Payable, Accounts Receivable, Fixed Assets, General Ledger, and Cash Management; Manage accounting month end close process; Prepare monthly, quarterly and annual financial statements; Prepare audit schedules for external audit and maintain monthly audit binder; Prepare revenue and deferred revenue schedules and related reconciliations for subscription and coin revenue; Reconcile high volume of daily transactions for sales, refunds, chargebacks, VAT, reserves, and payment processing fees; Perform daily reconciliations of all transactions between company’s internal database and multiple third party payment systems; Troubleshoot unprocessed transactions and source of failure from payment systems; Work with third party merchants to resolve unsettled transactions and foreign currency transactions converted to US dollar; Prepare VAT returns and maintain current VAT rates for internal database; Assist with various tax returns such as corporate income tax, property tax, sales/use tax; Develop and maintain accounting policies and procedures.

Qualifications/Skills: BA/BS in Accounting, comparable degree or equivalent work experience; 7+ years of general accounting, account analysis and reconciliation, and journal entry preparation required; Intermediate knowledge of Excel and pivot tables is required; Understanding of US GAAP required; QuickBooks experience preferred but not required; Organized, detail-oriented and thorough with the ability to adapt to manage multiple priorities in a fast paced start-up environment.

See the entire description over at the GC Career Center and visit the main page for all your job search needs.

SHOCKER: CFOs in New York Make Good Money

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Thomas Dooley, CFO of Viacom, received a total compensation package of more than $26 million in 2009. John Killian of Verizon Communications made a lot less–a mere $9.6 million. And Ian G.H. Ashken of Jarden Corp. got $9.5 million.

Those fellas are the three highest paid executives included among the 25 most richly compensated CFOs in the Big Apple, according to a list just published by Crain’s New York Business, drawing on data from compensation research firm Equilar.

Indeed if you’ve been wondering how CFOs in big New York-based companies have fared during these tough times, the answer seems to be: pretty darn well. The lowest paid on the list, Laurence Tosi of the Blackstone Group, made a mere $4.6 million. Second to last Adena Friedman of Nasdeq OMX Group: $4.8 million.


The biggest jaw dropper, however, is Dooley, who received $10 million in non-equity compensation and $10 million in stock awards. That, in fact, is somewhat of an anomaly among the group members. Generally the CFOs received a hefty sum in either non-equity compensation or stock and option awards, not in both. (An exception is Colm Kelleher of Morgan Stanley, who made $9.4 million but got zip in both non-equity compensation and stock/option awards. He did, however, get a $64 million bonus).

Also noteworthy: About nine of the executives received these breathtaking compensation packages even though the company had a net loss from 2008 to 2009. Gregory Hughes of SL Green Realty Corp., for example, made $6.1 million, while the company had a loss of 84.9 percent. Pierre Legault got $4.9 million even as the corporation had an 82.8 percent loss.

Of course, this pay isn’t typical of the compensation at most companies. “These CFOs are going to get paid more than your typical CFO, simply because they’re in a large metropolitan area and a large company,” says Aaron Boyd, head of research at Equilar. According to Boyd, a recent report on CFO compensation among the S&P 500 found median pay to be around $2.5 million.

Hey I’ll take it.

Job of the Week: SAS 70 Solutions Needs Senior Auditors

SAS 70 Solutions, Inc. is conducting a national search for Senior Auditors, with specific focus in California, Illinois and Texas.

Select qualifications include 2 to 5 years of Big 4 experience and currently holds or is pursuing any of the following certifications: CPA,
CISA, CISSP, PCI QSA and/or CIA.


Company: SAS 70 Solutions, Inc.

Title: Audit Senior

Location: National search with specifirnia, Illinois and Texas

Compensation: Competitive

Position Type: Permanent

Position Type: Full Time

COMPANY DESCRIPTION

SAS 70 Solutions was the first ever CPA firm founded for the purposes of performing SAS 70 audits. It is now the largest non-Big 4 provider of such services in the world. Over time, the company’s services have expanded to include other attestation services, such as SSAE 16 and AT 101 examinations, AUP reviews, and Trust Services certifications. The company also performs PCI DSS validations and ISO 27002 compliance assessments.

The company’s personnel are almost exclusively the alumni of the “Big 4” / Tier 1 global accounting firms. SAS 70 Solutions’ clients are located throughout the United States, and include a significant number of publicly traded and Fortune 1000 companies, as well as privately held organizations of all sizes.

SAS 70 Solutions builds on the best of what the “Big 4” firms have to offer, such as the ability to offer high quality professionals to our clients. It also eliminates the parts of the job that personnel tend to dislike about their “Big 4” experience, including time reporting, chargeability goals, small and arbitrary bonus amounts, sales pressure, and the practice of using inexperience associates to provide the bulk of professional services.

RESPONSIBILITIES

Because SAS 70 Solutions does not employ inexperienced associates, senior auditors provide the majority of all “hands-on” activities with oversight from an audit manager and shareholder. Activities include standard project execution and report preparation activities. Senior auditors report to audit managers, which rotate based on client assignment. Audit managers generally handle project planning and interaction with the client prior to an engagement. Client engagements typically last less than three weeks, which allows senior auditors the opportunity to work on many projects over the course of each year.

DESIRED QUALIFICAITONS

• Bachelor’s Degree in accounting, finance or other related topics
• Between two to five years of related experience within professional services in financial auditing, operational auditing, information systems auditing, internal auditing, information security consulting and/or risk consulting
• Achieved the “senior” auditor/consultant level at a “Big 4” firm
• Currently holds any of the following certifications – CPA, CISA, CISSP, PCI QSA and/or CIA
• Willingness to pursue relevant professional certifications (e.g. CPA, CISA, CIA, CISSP, PCI QSA, etc.)
• Demonstrated entrepreneurial abilities, client focus, industry savvy, and the ability to work independently or as part of a collaborative team
• Advanced written and verbal communication skills
• Strong analytical and interpersonal characteristics
• Ability to operate in a dynamic environment
• Demonstrated consistency in values, principles, and work ethic

BENEFITS

• Competitive salary
• Quarterly performance bonus, which has historically averaged in excess of $20,000 per annum
• The opportunity to work with other highly skilled personnel on a constant basis
• No time reporting!
• No financial audit support work!
• No chargeability goals, sales goals or managed fee goals!
• Monday morning through Thursday evening considered “standard travel”, with little or no travel scheduled on Fridays, Saturdays, or Sundays
• Travel bonuses for any non-standard travel (e.g., overnight flights and/or Friday, Saturday or Sunday travel)
• Confirmed client schedule and related travel that extends months into the future and rarely changes within 30 days of an engagement
• Twenty-five (25) days of personal time off
• Immediately vested annualized employer 401(k) matching of 6% of the employee’s base salary
• Employer paid (or subsidized) health, vision and dental insurance
•Employee directed health savings account

TRAVEL

Out-of-town travel is estimated at 50%, or more, and is heavily dependent on the candidate’s location. Candidates must be available to travel and work in excess of standard hours when necessary.

Questions or Resumes may be submitted to careers@sas70solutions.com

For further information about SAS 70 Solutions, Inc., visit http://www.sas70solutions.com. SAS 70 Solutions, Inc. typically does not pay relocation expenses for employment candidates. Non-US citizens will not be considered. SAS 70 Solutions, Inc. is an equal opportunity employer (EOE) and strongly supports diversity in the workplace.