Going Concern

Accounting News Roundup: Schapiro Says Timing of Goldman Suit Not Political; Old Madoff Stomping Grounds Close to Foreclosure; IRS Launches Inquiry into Florida GOP Credit Card Spending | 04.22.10

Caleb Newquist
April 22, 2010

SEC Chairman: No Heads Up on Goldman Lawsuit [WSJ]
Mary Schapiro would like everyone to know that just because they laid the smackdown on Goldman Sachs last Friday instead of, say, last year is that A) she’s still new at this job and B) the SEC does (and most certainly does not) what it wants when it wants. Even if it is an election year, the POTUS and his agenda have nothing to do with it.

“I started this job 15 months ago, in the wake of a serious financial crisis and with the view that the SEC must regulate Wall Street and vigorously enforce the securities laws. We will neither bring cases, nor refrain from bringing them, because of the political consequences. We will be governed always and only by the facts and the law.”

Lipstick on the collar [NYP]
The Post is reporting that the Lipstick Building, where Bernie Madoff had his North Pole offices is sliding ever closer to foreclosure. The report states that the Royal Bank of Canada is looking to get rid of its $210 million mortgage on 885 Third Ave.

“[T]he Lipstick Building’s problems are the direct result of having been purchased at the height of the property boom. RBC’s $210 million loan was provided as part of a complex financing structure used by Israel’s Metropolitan Real Estate Investors — led by Haim Revah and Jacob Abikzer — to pay $648.5 million for the property in 2007.”

Feds launch inquiry into Florida GOP credit-card expenses [Miami Herald]
The IRS is poking around the credit card activity by some Florida Republicans including the leading contender for its U.S. Senate, Marco Rubio. The IRS has opened a “preliminary inquiry” to determine if there is enough evidence to launch a formal investigation.

The Miami Herald and St. Petersburg Times both obtained credit card statements of Mr Rubio that reportedly include, “repairs to the family minivan, grocery bills, plane tickets for his wife, and purchases from retailers ranging from a wine store near his home to Apple’s on-line store. Rubio also charged the party for dozens of meals during the annual lawmaking session in Tallahassee, even though he received taxpayer subsidies for his meals.”

Mr Rubio insists that there “absolutely nothing to this,” and that “We don’t believe it’s income,” which sounds like some famous last words prior to a full blown IRS investigation.

Quote of the Day

Harry Markopolos Knows What to Do About Off-Balance Sheet Accounting

Caleb Newquist
April 22, 2010

“[E]liminate all use of off-balance sheet accounting–for any use whatsoever. Everything must be on balance sheet.”

~ Harry Markopolos, on one aspect of financial reform.

Nonviolent Measures Prevail in Case Involving Phony IRS Agent

Caleb Newquist
April 22, 2010

You could make the assumption that since Sherry Lynn Vertoch was merely posing as an IRS agent that the hoteliers didn’t have any cause to take any violent action. Had she actually been an IRS agent we probably could have expected some sort of shooting, bombing, plane-crashing or torture performed for the sake of American tradition.

A woman who racked up two years of unpaid lodging in Novato while posing as a federal tax agent was granted probation by a federal judge Tuesday and ordered to pay $55,000 to the hotel owners.Sherry Lynn Vertoch pleaded guilty in February to impersonating a federal officer. Chief U.S. District Judge Vaughn Walker in San Francisco accepted a recommendation by federal prosecutors and Vertoch’s lawyer to place her on supervised probation for five years rather than sending her to prison.

Fake IRS agent told to pay $55,000 hotel bill [SF Chronicle]

CFOs

Has Florida CFO Alex Sink Watched Scarface Too Many Times?

Caleb Newquist
April 22, 2010

It’s been a while since we shared some cost saving ingenuity from Florida’s CFO–cum-Gubernatorial candidate, Alex Sink. However, this time we learn how she managed to spend some of those savings.

According to the Politics blog of the South Florida Sun-Sentinel, CFO Sink’s Department of Financial Services has “purchased 182 assault rifles – costing $255,000, according to Sink’s office – in the last two years.” When you Google “assault rifle” one of the first links takes you to this.

A spokesman for the wannabe Guv made it plain for those GOP haters (who are all of a sudden against guns?) trying to block Sink from purchasing more BFGs:

The rifles are necessary to protect fraud investigators who deal with “dangerous people,” said spokesman Kevin Cate – arsonists, sophisticated car insurance fraudsters, money launderers. If Republican legislators are taking a shot at Sink with the assault-weapon purchasing ban, “that’s a shot at officer security,” Cate said.

Sink said: “I rely on my law enforcement people to evaluate what the risks are and what they need. I’m going to do everything possible to protect them.”

Look. We’ve got no doubt that some white-collar criminals are dangerous but this seems a tad ridiculous.

On the other hand, since it is South Florida and basically anything can happen (including 10 – 26% returns on arbitraging groceries) perhaps this type of firepower is necessary.

Bonus Watch ’10: Are Deloitte Partners Getting More Generous to Keep the Peace?

Caleb Newquist
April 21, 2010

Here we are, it’s April, and most of you are happy to be bored (relatively) at work for the first time in months. Now that your brain isn’t saturated with numbers and/or what you’ll eating at your desk, you may be weighing your options. As we’ve mentioned, Big 4 partners are expecting this and naturally they want to keep their top performers. How best can they do this? Bribery of course!

And at Deloitte, this method seems to be gaining steam. An accountant close to the situation gave us the rundown on the recognition programs at the firm:

• Applause Awards (whenever)
• Outstanding Performance Awards (whenever)
• Merit Bonuses (annual)

For the most part AAs ($100 to $500 – tax adjusted) and OPAs ($500 to $5,000 – non-tax adjusted) were frozen for the last 2 years; with MBs only being processed for 1s and sometimes 2s (we’re rated on a scale of 1 to 5 – 1 being the best, 5 the worst – with typically 5% 1s, 10% 2s, 80% 3s, 5% 4s and 5s).

Now that you have the background, there’s this:

Based upon what I’ve been hearing very recently, strong performers have been getting [Applause Awards] for $100 in the NE [Advisory] practice. In some limited instances, partners have also hinted at more money coming their way (seemingly in the [Outstanding Performance] realm). Seems like the partners are noticing that people, especially performers, are getting antsy; and are trying to keep the peace until compensations are adjusted in September…

Well! Good to see that Deloitte partners are taking their firm’s advice (combo of #2 and #5). This could work out well for those of you that are rockstars at Deloitte (and are easily swayed by monetary reward) but for the other 80% that fall into the unexceptional categories, you may just have the longer ladder to look forward to.

Earlier:
KPMG Reinstating “Standing Ovation” Bonus Awards

Announcements

Thanks to This Week’s Advertisers

GoingConcern
April 21, 2010

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

• Bisk Education

• Delta

• Sunshine Suites

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

Thanks!

Cuomo: Espada’s Looting of Nonprofit ‘Reprehensible’

Adrienne Gonzalez
April 21, 2010

In the largest nonprofit fraud case we’ve ever seen, State Senator Pedro Espada, Jr is getting it from NY Attorney General Andrew Cuomo for perpetrating a $14 million scam using his non-profit as an ATM. Ouch.

Soundview Comprehensive Community Development Corp., a Bronx-based health care non-profit, appears to be little more than a vehicle for Espada’s extravagant lifestyle and Cuomo doesn’t find any of it to be entertainment.

“Siphoning money from a charity would be egregious under any circumstances, but the fact that this was orchestrated by the State Senate Majority Leader makes it especially reprehensible,” Cuomo said in a statement.

Espada’s charity allegedly paid $100,000 for campaign literature, $80,000 on meals for Espada (including $20,000 for sushi – one of JDA’s weaknesses but hey, at least I pay for my own), vacations for the family and $2,500 a month for a co-op rental in the Bronx in which Espada supposedly lives. Double ouch.

If you’re into that sort of thing, you can check out the summons from the AG’s office here.

To date, Cuomo’s complaint is merely a civil one but he has left the door wide open for criminal charges against Espada and 19 others, including family members installed on the charity’s board. Taking a page from the Crazy Eddie fraud handbook, I see.

Espada also allegedly used the nonprofit’s corporate credit card to cover up to $450,000 in expenses that he’s now admitted may have been personal. Snicker snicker, everyone knows the corporate card should only be used for personal expenses if one is trying to fund an affair and hoping the wife doesn’t find out. Duh.

Because being a nonprofit looting Senate majority leader is hard work, Espada took the first 14 weeks of the year off and charged the paid leave to – you guessed it – Soundview. Since its board is packed with friends and family, they approved a $75,000 payout for personal expenses associated with this respite in a lump-sum payment at the beginning of the year.

Espada has responded by claiming Cuomo’s accusations amount to little more than a “witch hunt” meant to advance the AG’s political career. Whatevs.

Meanwhile, Espada’s Senate homies are praying for him. For $14 million bucks, he needs all the Hail Marys he can get, especially since the FBI and IRS raided the clinic this morning. Good luck with that.

KPMG
News

KPMG Got Fired by North American Savings Bank After Six Months on the Job

Caleb Newquist
April 21, 2010

Technically, if you count the days (based on the 8-K) it’s less than six months.

The reason? Without getting too wonky, it appears NASB wasn’t thrilled that KPMG challenged their valuation method of a real estate investment, Central Platte Holdings, LLC.

Klynveld had been engaged to audit the September 30, 2010 financial statements of NASB but things managed to get confrontational right off the bat as KPMG raised questions about the Company’s valuation methodology of Central Platte in its first quarter review.

This must have made NASB a little uncomfortable since KPMG’s methods might not paint as rosy as a picture and could have resulted in a restatement. Per the 8-K, “KPMG also informed the Company that if the investment was determined to be impaired, evidence existed which indicated that such impairment may have occurred in a prior period.”

Obviously the mere idea of a restatement was completely unacceptable for NASB but when KPMG requested that the Company engagement a third party appraisal, they really freaked. Either the bank didn’t want to pay for said third party’s services, or they were worried that the appraisal would show that Central Platte wasn’t worth squat.

Here’s What Big 4 Accountants Need to Know About the Current Job Market

Daniel Braddock
April 21, 2010

Ernst & Young’s red alert email that was shared by GC yesterday should not be taken lightly. Doesn’t matter where you work – your job is about to get harder.

Chances are your most recent busy season was relentlessly terrible. A year removed from rounds of cuts and going on two years with zilch for a raise, the masses at the Big 4 are getting antsy, as they should. It’s now or never. Raises are coming. People are leaving. What should you do?

Consider it professional osmosis – Remember high school science labs? Same theory applies to today’s financial services job market. In one Petri dish there are overworked and underpaid public accountants; the other has job openings and cash flow. It doesn’t take a lesson from your high school chemistry teacher (or me) to explain how this one works. The back offices of financial markets are increasing their numbers as investments begin to flow in again.

Better than a tax refund – The job market for tax professionals will hopefully see its typical action this summer. According to a recent FINS article, interest in making a change is at an all-time high, “43% of tax professionals are hoping to change jobs when the economy evens out, according to a survey by the large U.S. finance headhunter Ajilon Professional Staffing. ‘That’s a large number — one of the largest numbers than we’ve seen in years,’ said Jodi Chavez, a senior vice president at Ajilon.”

Does this mean 43% of your staff is jumping ship? Hell no. The job market is warm not on fire. But it does mean that you should expect to see more “Farewell” emails like this one. If your buddies skip town in a similar fashion to that letter, please share with us.

What about this E&Y thing? Well…I don’t know. Desperate times sound like they’re wrapped up in a formal message with a $7,500 ribbon on top. KPMG made a similar request for advisory reinforcements a few weeks back but they didn’t go so far to make a public plea for external hires. The E&Y situation is probably not as bad as it’s being played out here at GC; it could be a pre-emptive move to protect the practice from layoffs. How bad is it really? We need to know. Get on the horn and tell us in the comments.

Accounting News Roundup: Arguments Against the VAT; PwC Donates $500k to Expand Diverse Talent Pipeline; Tax Documentary Needs a New Name | 04.21.10

Caleb Newquist
April 21, 2010

Conservatives and the VAT [TaxVox]
Howard Gleckman at TaxVox explains that the two main arguments that conservatives have against a Value Added Tax (“VAT”) is that 1) it will put trillions into the Treasury that liberals will spend with reckless abandon. Plus the American people would not realize that they were paying so much to the Feds and 2) that it’s “too efficient.”

Re: #1 he essentially says (and we agree) “how is this different than the current situation?” and Americans are already clueless about how much they pay in taxes:

Americans seem entirely unaware of how much they pay in income taxes. The Tax Policy Center estimates that a typical American remits less than a dime in income tax for every dollar he or she earns. Ask the next 10 people you see how much of their income they paid in taxes just a week ago and I suspect none of them will get it right.

As far as #2 is concerned, he cites the idea “tax law distorts economic decision making,” and explains that “the worst possible tax system is good because it will punish the economy to the maximum possible extent.” That is, some argue that a complex system prevents more wasteful spending (chew on that for awhile).

He concedes that it wouldn’t be a perfect system but in case you haven’t heard, our government has a revenue problem (yes, he says spending needs to be cut too) and raising income taxes is about as popular as Al Gore at an Oil Barons Ball.

PricewaterhouseCoopers Announces $500,000 in Grants to Expand Diverse Talent Pipeline [PR]
PwC will shell out $150k to Bryant University, The University of Southern California and Wake Forest University and $50k to Florida International University to help spread the good word of tax careers to minorities, “[The Universities] will use the funds for scholarships and hands-on career exploration programs for students from groups that have historically been underrepresented in the accounting field, including African-Americans/blacks, Latinos and Native-Americans.”

An Inconvenient Tax: Philadelphia Premiere! [Tax Girl]
While this looks like a moderately interesting documentary, the title is terribly unoriginal.

An Inconvenient Tax – Trailer from Life Is My Movie Entertainment on Vimeo.

Big 4
EY

Ernst & Young Pulls Its “We Are Las Vegas” Sing-a-Long (cry)

Adrienne Gonzalez
April 21, 2010

Editor’s note: Caleb is at some Si Se Puede rally with other pissed off Big 4 expatriates or something so I’m forced to bring you this news. Surely he’ll return shortly to continue keeping E&Y’s “Internet Reputation Team” in a job.

Earlier today, Caleb posted a pretty awful Ernst & Young sing-a-long that I unfortunately did not get to watch before it was pulled by – well duh – E&Y. Hope you saw it while it was up, I’m sure it was fabulously lame.

It appears they have a bit of a public relations nightmare on their hands but who can say?

Here’s another excellent Uncle Ernie flick, wonder how long it takes for them to pull this one?

Damn. That makes me want to be an auditor.

Quote of the Day

Lehman Whistleblower on Ernst & Young’s Reaction to His Letter

Caleb Newquist
April 21, 2010

“They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.”

~ Matthew Lee, the Lehman Brothers whistleblower, in testimony today.

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