Going Concern

Quote of the Day

Accounting Rules Were Just Fine Until You Came Along

Caleb Newquist
June 3, 2010

“The primary result of the convergence project has been to take a set of perfectly mediocre accounting standards (U.S. GAAP) and messed them all up.”

~ Professor David Albrecht, who isn’t quite ready to dance on the grave of accounting convergence.

SEC: Diebold Financial Execs Would Step Over Their Own Mothers to Meet Earnings Forecasts

Caleb Newquist
June 3, 2010

The Diebold CFO, controller and Director of Corporate Accounting had a fairly standard routine back from 2002 to 2007 – 1) get daily “flash reports” 2) look at BS estimates that analysts came up with 3) cook up some ideas for meeting those estimates 4) make up the numbers.

Pretty standard stuff, especially if you buy the idea that “legally cooking the books is a critical skill for attracting investors.”

The SEC presented the accounting hocus-pocus earlier today:

The SEC alleges that Diebold’s financial management received “flash reports” — sometimes on a daily basis — comparing the company’s actual earnings to analyst earnings forecasts. Diebold’s financial management prepared “opportunity lists” of ways to close the gap between the company’s actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold’s financial performance.
…
Among the fraudulent accounting practices used to inflate earnings and meet forecasts were:

• Improper use of “bill and hold” accounting.
• Recognition of revenue on a lease agreement subject to a side buy-back agreement.
• Manipulating reserves and accruals.
• Improperly delaying and capitalizing expenses.
• Writing up the value of used inventory.

Gotta give yourself some options, amiright? Can’t just simply rely on channel stuffing!

But in all seriousness, if you’re a top financial executive at a company and part of your daily routine is finding ways to increase profitability through accounting manipulation, at some point you’d have to think to yourself, “This is one shitty business we’re running.”

Dylan McKay Won’t Be Able to Save Brenda Walsh From Her Tax Problem

Caleb Newquist
June 3, 2010

Yesterday we may shared with you the unfortunate news about the dude from Reading Rainbow having a little tax problem which may have taken you back to the days of still whining about the lack of Cocoa Puffs in your house.

This time around celebrity tax problems take a little bit of a different path down memory lane (and a different theme song to get stuck in your head) to those days where your hormones were in control and the feeling of awkwardness was constant. For those of you too young to be familiar or give a rat’s ass about 90210, we’ll kindly enlighten you by stating unequivocally that Gossip Girl WOULD NOT EXIST without 90210.

Yes, Brenda Walsh, er, Shannen Doherty seems to have run across some tax trouble (just about $250k, NBD really) and as is our wont, we’ll present some possible solutions.

A) Another run at DWTS (nobody really gets it the first time).

B) 90210 movie – May we suggest that old wardrobe and hair styles be incorporated and that they should definitely go for the R rating? (seriously, how many times do you wish Dylan would have said “Fuck you Brandon, you momma’s boy” right in his smug face?)

C) Call ex-boyfriend Rick Salomon and see if he’s interested in making another movie.

D) Serious suggestions welcome.

‘Dancing’ star trips over tax bills [Tax Watchdog]

Layoff Watch ’10: McGladrey Makes Nationwide Cuts

Caleb Newquist
June 2, 2010

Over the past month, we have heard lots about layoffs at RSM McGladrey/McGladrey & Pullen but we didn’t have much for details.

Frankly, we still don’t know a lot but we’ll go with what we’ve got. So far we know about reductions in the New York, Chicago, Quad Cities, Florida and Seattle offices and everything we’ve been told indicates that they are occurring elsewhere.

First the Emerald City:

I was ample. There is a new geographic restructuring going on. Instead of multiple “economic units” there will be only three regions. Many HRs and CFOs from different offices are losing their jobs. Consulting people talk about 100 positions that will be eliminated across the country. 10 people were let go from Seattle Economic Unit which includes Seattle, Tacoma, and Olympia offices. We were informed about the reorganization somewhere around 04/12 and laid off at the end of the month. I think everybody received severance.

We’re not that familiar with past cuts in the RSM/M&P world but the big cuts in consulting seem to trail the Big 4’s by a year or two, although if some of these smaller clients are giving into the Big 4 lowballing then perhaps this is the natural progression.

Meanwhile:

Their Florida Private Club operations group closed the Club IT Consulting Group and layed off the staff. Some of the staff have been part of the firm for more than 20 years and were profitable.

Chicago just layed off the Operations Consulting Staff yesterday, [approximately] 10 people. This group was left to dangle in the wind, sink or swim on their own without marketing or sales assistance or access to the firm’s client-base Naturally it failed.

This firm’s actual layoff numbers are always reported low because they chase people out prior to layoffs in an attempt to camouflage the numbers. Their tactics to accomplish this include poor performance evaluations for staff, unreasonable margin requirements, constant peer pressure meetings regarding performance and head to head comparisons. This creates a dysfunctional relationship between groups and actually motivates groups within their own company to compete with one and other. Only so much people can take and then they leave. Just what the firm wanted.

Considering the economy in Florida, the demise of RSM’s private club operations in that corner of the over-leveraged world wouldn’t come as much of surprise. That being said, you might expect that veterans of the firm would be accommodated somehow with other internal opportunities.

As far as the “chasing” this is Jack Welch’s magical forced ranking method that the Big 4 has accepted like its own creation.

We reached out to both RSM’s corporate spokeswoman and their general counsel, both of whom have not responded to our request for comment. We also contacted an H&R Block spokesman to see if they could elaborate on these layoffs from the parent company level but again, our requests have gone unanswered. H&RB had their own layoffs last month however, there is no indication at this point whether cuts at H&RB would have anything to do with those at RSM/M&P.

We’re still accumulating details on these cuts, so get in touch with us about details on your office or discuss below. And don’t be shy, we know you McGladrey types been hesitant to call on us in the past.

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GoingConcern
June 2, 2010

A quick word of thanks to this week’s advertisers on Going Concern:

• Bisk Education

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If you’re interested in advertising on Going Concern, email us at advertising@breakingmedia.com.

Thanks!

Promotion Watch ’10: Latest Details on KPMG’s New Managers

Caleb Newquist
June 2, 2010

From a Klynveld Quaker:

In recent meetings with PA Business Unit leadership with all audit staff (i.e. A and SA’s), we were told that of the 32 inidivudals up for promotion to Manager in the combined three offices (Philly, Harrisburg, Pittsburgh), that 22 were officially promoted. Of the 10 that weren’t, at least 1 just came back from international rotation, and either 2 or 3 (can’t remember which) hadn’t passed the CPA exam and therefore couldn’t be considered for promotions. All raise and bonus theories were squashed (as to hard percentages), though we were told to expect some form of raise as well as variable comp at FYE.

So just a shade better than two-thirds of the Keystone KPMGers eligible for manager will be in the new manager class. As you may remember, this is pretty close to the breakdown for one office in the Rockies but a little less than an office in the northwest.

Since the firm has four months to go in its fiscal year, the fact that the local leadership wouldn’t even give a hint comes as no surprise. That said, it hasn’t stopped people from speculating about what they think the increases will be. We encourage you to share what you know, what you’ve heard, or your own wild-ass guess. And keep us updated with the latest in your office.

GAO Audit Uncovers Fraud at Head Start Programs

Adrienne Gonzalez
June 2, 2010

The Head Start Program, under the Department of Health and Human Services, provides child development services to mostly low-income families and their children. Up to 10% of Head Start-enrolled families can be over-income, with an income 130% above the poverty line.

Of course, things don’t always work out as they are supposed to and the GAO has discovered problems with about half of the centers it examined through the investigation, just a small sample of the 1,600 nonprofit centers running 3,000 Head Start programs.

From the GAO:

GAO received allegations of fraud and abuse involving two Head Start nonprofit grantees in the Midwest and Texas. Allegations include manipulating recorded income to make over-income applicants appear under-income, encouraging families to report that they were homeless when they were not, enrolling more than 10 percent of over-income children, and counting children as enrolled in more than one center at a time. GAO confirmed that one grantee operated several centers with more than 10 percent over-income students, and the other grantee manipulated enrollment data to over-report the number of children enrolled. GAO is still investigating the other allegations reported. Realizing that these fraud schemes could be perpetrated at other Head Start programs, GAO attempted to register fictitious children as part of 15 undercover test scenarios at centers in six states and the District of Columbia. In 8 instances staff at these centers fraudulently misrepresented information, including disregarding part of the families’ income to register over-income children into under-income slots. The undercover tests revealed that 7 Head Start employees lied about applicants’ employment status or misrepresented their earnings.

GAO managing director for special investigations Gregory Kutz told a House education committee last month that “the system is vulnerable to fraud.” No kidding.

While unable to determine the motivation of Head Start employees to commit fraud by adjusting income levels on applications, Kutz theorized that management of nonprofit agencies receiving Head Start funds pressured staff to fudge, fiddle with, or straight up fake figures on applications in order to keep federal funds coming in.

Head Start has served over 25 million children since 1965 and there are currently over 1 million children enrolled in Head Start programs.

Adrienne Gonzalez is the founder of Jr. Deputy Accountant, a former CPA wrangler and a Going Concern contributor . You can see more of her posts here.

Accounting News Roundup: PwC Dealt a Blow on Penn. Healthcare Bankruptcy Ruling; Zipcar Going Public; Altria Gets Smoked by IRS | 06.02.10

Caleb Newquist
June 2, 2010

PwC loses ruling on big Pa. healthcare bankruptcy [Reuters]
We’re a little late to the party on this one – holiday and all – but we’ll get you caught up. Allegheny Health, Education and Research Foundation (“AHERF”), a large Pittsburgh hospital system, sought Chapter 11 bankruptcy protection in 1998 with over $1.3 billion in debt. Unsecured creditors of AHERF accused Coopers & Lybrand of “conspiring with AHERF officials in the 1996 and 1997 fiscal years to hide the increasingly dire financial health of the Pittsburgh-based system.”

In 2007, a District Court in ruled that the creditors could not recover any damages from PwC on behalf of AHERF due to “a legal doctrine governing cases of equal fault, concluding AHERF was at least as much at fault as PwC.”

The Third Circuit Court of Appeals finally got the case on their docket and unanimously overturned the ruling saying that PwC could be liable if they had “not dealt materially in good faith with the client-principal.” The Third Circuit also disagreed with the lower court’s finding that misstated financial statements could have a short-term benefit to AHERF, saying “‘a knowing, secretive, fraudulent misstatement of corporate financial information’ cannot benefit a company.”

Zipcar Files for a $75 Million I.P.O. [DealBook]
The car-sharing company announced yesterday that it has filed for a $75 million offering to pay off debt and pay for general expenses as it plans to expand its business in the U.S. and Britain. DealBook reports that the company, founded in 2000, has lost money every year and warned in its S-1 filing that it might not become profitable as it incurs significant expenses in the expansion.

Man accused of ‘bomb bag’ threat at IRS office [SF Chronicle]
Lawrence Rios was charged yesterday for allegedly threatening an IRS employee after he handed the woman a note that read “bomb bag” and patted his backpack, insinuating that he had more than trail mix in there, in August of last year. This occurred after the employee had been assisting him for 10 minutes. We’d hate to see how he reacts at the post office.

SEC Is Boosting Scrutiny of Offshore Accounting, Fagel Says [Bloomberg BusinessWeek]
Shoddy accounting practices that were/are rampant in the U.S. – revenue recognition and outright fraud – have not been rooted out offshore, so the Commission is looking to tighten up the controls and practices of foreign subsidiaries. Marc Fagel, head of the SEC’s San Francisco office told Bloomberg, “They’re not doing that so much in San Jose, but they may have a Hong Kong office where they haven’t figured out they’re doing that, or that it’s a problem.” The San Fran office is looking to add a dozen attorneys and accountants to help with the Commission’s efforts.

Altria to pay $971 million in taxes, interest to IRS [Reuters]
The payment settles a dispute between the company (aka Philip Morris) and the Service over its 2000 to 2003 tax returns.

HR 4213: Soon-to-be the Worst Tax Enactment of the New Decade?

Caleb Newquist
June 2, 2010

“The S corporation tax increase in HR 4213 is a mess and should not be enacted.”

~ Joe Kristan, on the legislation that will hit small business with a 2.9% medicare tax increase.

The Big 4 vs. Private Sector – Shoulda, Coulda, Woulda?

Daniel Braddock
June 2, 2010

Happy ~~MoanDay~~ Tuesday, everyone.

Last week’s post about Big 4 firms lowering the bar on starting salaries in order to project artificial pay raises was well discussed in the comments section. Thank you to everyone who commented, as that’s what makes this online community vocally vibrant and a joy to be a part of.

Part of the conversation included a debate about whether it is better to begin a career in accounting with a Big 4 firm or in the private sector; two very different career paths. The question is a legitimate case of shoulda coulda woulda. The following are a few comments from the peanut gallery:

• Guest said, “Even though I was offered $55k + $5k bonus out of college for a Big 4, I was VERY close to not accepting the offer and instead going with a private firm that was $60k starting and normal hours. The only reason I went to the Big 4 was because I fell for the trap of ‘the name recognition.’ If I could go back in time, I would have chosen the private firm.”

• Another Guest crunched the numbers, “In a Big 4, you’re overworked about 20-25% more than the private sector (if not, then more). Say a Big 4 offers you $55k starting. Your “REAL” salary relative to your peers would in fact be $55,000 / 1.25 = $44k. If you lower it to $50k for a first year, that equates to a real salary of $40k.”

• Finally, 2nd Year Associate chimed in with, “Plenty of my college pals are making upwards of $10k more than I am a year and they don’t even have their CPAs. I joined public accounting to get ahead over the next 5 to 10 years but if my pay was any less I’d have skipped this route completely.”

I think it all depends on where your career is at. If you graduated in 2007 or 2008, you might be less thrilled to be on the public accounting career. The double digit percentage raises for everyone on the team that were fiercely promoted by the Big 4 campus recruiting machines have yet to materialize for you, and now you find yourself lumped into the “just happy to have a job” group. Your classmates that went the private route have been cruising on decent pay and 45 hour work weeks. Nothing good to see here; move along.

If you’re 4-8 years into your career, you’re obviously in a different place. You’ve experienced the 15% raise, climbed the corporate shuffleboard to senior staff or manager, and utilize the phrase, “when I first started here…” all too often. You’ve earned your stripes after a number of busy seasons; your desire for a new job is to be better respected by your superiors. Pay isn’t everything, but it’s important.

Throughout all of this, you’ve benefited from the resources of working at a large firm (no, I’m not talking about free dinners). The training programs have been extensive, your CPA license is paid for, and you’ve been enjoying as much of your five weeks of vacation as the firm allowed you to take. And what about having the name on your resume? Having a pedigree firm on your resume can oftentimes land you the interview; earning the pay day is up to you.

So why did you enter into public accounting? Was it because the Big 4 had a strong presence on your campus? Were private companies not offering enough? Would you change anything about your career path to this point? Leave your thoughts below.

News

FASB Chair: Yeah, We’re Not Meeting That June 2011 Convergence Deadline

Caleb Newquist
June 1, 2010

Yes, that’s your shocking headline of the day. Despite the retripling of efforts via videoconferencing and other fancy-schmancy technology, some Frenchman losing patience, and having a Knight spearheading 50% of the efforts, they will utlimately fall short of the June ’11 goal.

We know. Catch your breath or place yourself back in your chair, and then you can read Emily Chasan’s account from Reuters:

The Norwalk, Connecticut-based FASB and the London-based International Accounting Standards Board expect to announce changes to their convergence work plan in the next week or so that would delay the completion date by about six months and allow for greater public comment on the boards’ proposals, FASB Chairman Robert Herz said in an interview with Reuters.

“We’ve been working on a revised work plan with the IASB,” Herz said.

“We’d all like to see the work done as expeditiously as possible, but we don’t want to sacrifice proper due process.”

Herz said that to issue final standards by June 2011, the boards would have to release about 10 proposals in the next two months and rush through the public comment process.

It was nice of the FASB and IASB to say, “June? No problemo,” to the G20 BSDs but many organizations, including Financial Executives International, and even Chief Accountant Kroeker said that the overachieving might lead to some shoddy accounting standards.

Mr Herz is still optimistic about finishing up before 2012 telling Reuters that the two Boards will “get most if not all of [the accounting standard proposals] done by the end of 2011,” which is probably enough time for IFRS to be adopted by everyone. But then the world is on a strict deadline to end in 2012, so why are we bothering with this again?

FASB says will not meet 2011 convergence deadline [Reuters]

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