Going Concern

PricewaterhouseCoopers Shutting Down Orlando Tax Practice

Caleb Newquist
March 17, 2010

Yesterday, PwC tax professionals got word that the firm is discontinuing tax operations from its Orlando office effective May 3, 2010.

Mario de Armas, the South Florida managing partner, explained that lack of business, “Orlando-based tax clients has declined, and we have been forced to import tax hours from other offices to keep our people busy,” and staffing challenges, “We have also faced a continued challenge around staff development in a primarily compliance environment,” lead to the closure of the practice.

The email states “We are committed to assisting each impacted individual with this transition,” although no details were given. The email also states that there will be no other Florida practices will be shut down, “To be clear, we have no plans to close any other practice areas in any of our Florida offices.” Emails to Mr de Armas and Jorge Gross, the Florida Tax leader were not returned. An email to PwC’s national press relations was also not returned.

This practice closure follows recent office closures by both Grant Thornton and Ernst & Young (“virtual” closure) in Greensboro, NC and E&Y closing its Manchester, NH office last fall.

If you will be affected by this closure, get in touch with us and we’ll continue to update you as we learn more.

Florida Colleagues:

We are constantly evaluating our client service delivery to ensure that our clients receive the best service possible and that our people are being offered opportunities for development and advancement. Over the past few years, revenue from Orlando-based tax clients has declined, and we have been forced to import tax hours from other offices to keep our people busy. A limited number of corporations are headquartered in Orlando, and while many of those corporations have been retained as audit clients, fewer have been tax clients. We have also faced a continued challenge around staff development in a primarily compliance environment, and more compliance work will be performed at the centralized Tax delivery center over time. As a result, the Firm has concluded that we will no longer have tax professionals located in the Orlando office effective May 3, 2010.

Knowing that we will be asked about this decision in the marketplace, it is important that we have a clear message to the market. From a strategy perspective, we believe that our distinctive footprint across the state of Florida makes us uniquely positioned to service our Orlando clients from our other offices, following the One Market concept.

This has been a difficult decision, and one that was reluctantly made after considering many factors. Our Tax professionals in Orlando have served our clients well. They have contributed in many ways to our market, and their efforts are valued and greatly appreciated. We are committed to assisting each impacted individual with this transition.

To be clear, we have no plans to close any other practice areas in any of our Florida offices. Please contact me or Jorge Gross, our Florida Tax Leader, with any questions you may have.

Thank you,

Mario

Senators Want Accounting Details From Boys & Girls Club of America

Adrienne Gonzalez
March 17, 2010

Presented by Serenic Software. Download our free whitepaper – “5 Key Reasons Why Great Financial Management is So Important for Your Nonprofit Now”

A group of Republican senators (including Chuck Grassley) want Boys & Girls Clubs of America executives to answer for such egregious non-profit sins as high executive salaries, fat retirement plans, and lobbying expenses. You see, Chuck Grassley is a sharp guy (wild statements about executive suicide notwithstanding) and as ranking member of the Senate Finance Committee, he’s the one keeping an eye on the sort of action non-profits get from Congress. So when an $85 million a year initiative to provide blanket funding to the non-profit group slipped by the committee, the red flags went up.

Iowa’s Grassley is joined by Tom Coburn, R-OK; Jon Kyl , R.-AZ.; and John Cornyn, R-TX in questioning a multitude of sins including CEO Roxanne Spillett’s $1 million a year compensation package, half a million dollars a year in lobbying and $4.3 million in “travel expenses.” Not really a problem if the funds are unrestricted and coming from donors who know their donations may go to, say, trips and renting a Senator here and there. Nah. After reviewing the org’s 2008 tax return, the senators concluded that 40% of Boys and Girls Club funding comes from the federal government.

The new Senate bill, S.2924, changes the original intent of a 1998 bill that granted $20 million a year to provide “seed money” for 1,000 new Boys & Girls Clubs from 1997 – 2001. Grassley argues that this new legislation essentially turns money that should go to keeping low income at-risk youth off the streets, into a vague piggy bank for the organization. Naturally, Chuck & Co. have a problem with that.

The Boys & Girls Clubs of America posted a $13 million loss in 2008. In 2009, it cut 10% of its full-time workers, instituted 26 furlough days a year, and closed chapters in DC, Florida, Georgia, Virginia, and others.

Though the organization hasn’t had time to personally respond to Grassley’s nice letter last Thursday, they told the Journal they’d be complying with the investigation and not at all afraid of what the committee may find, insisting they are no more poorly-managed than any other non-profit nor do they spend more on lobbying than anyone else either.

Sounds like an excellent defense; I don’t see how it could go wrong.

Senators Demand Accounting from Boys & Girls Clubs [WebCPA]
Sens Try To Block Funding To Boys & Girls Clubs of America [WSJ]

Accounting News Roundup: Overstock.com Filing 10-K Late; Avoid Tax Related Status Updates on Facebook; IRS Is Getting to Most of Your Calls | 03.17.10

Caleb Newquist
March 17, 2010

• Happy St. Patrick’s Day! Try to stay sober-ish at lunch today.

• Overstock.com Delays Filing 10-K, Reports Even More GAAP Violations, While Patrick Byrne Hides [White Collar Fraud]
Yesterday marked another SEC deadline that has come and gone, and if you’re one of those teams that has a client filing late, this means that your life is still not yours. Case in point, the KPMG team tasked with turning the ship around at Overstock.com still has some work to do as they filed form 12b-25 yesterday afternoon, notifying the SEC that the 10-K would be a tad late.

“Overstock.com nonchalantly lumped in its latest GAAP violations with other GAAP violations previously disclosed by the company on January 29, rather than separately disclosing them,” writes Sam Antar (emphasis original). Here are the new booboos:

Identification of amounts related to customer refunds and credits not properly included in the Company’s monthly reconciliation of customer refunds and credits to third party statements to determine the completeness and accuracy of returns expense.

The accounting for certain external audit fees on a ratable basis, instead of as incurred.

The recognition of co-branded credit card bounty revenue and promotion expense on an immediate recognition basis, instead of over time.

The late recognition of a reduction in the restructuring accrual for a new sublease and the recognition of interest expense related to the accretion of the restructuring accrual.

The Company reports that the filing will be delayed “until it has completed the restatement process and all procedures necessary,” to get things right. Patrick Byrne is nothing, if not thorough. Oh, and they mentioned that they’ll be reporting material weaknesses in their internal control system but, BUT! that they are still going to report their first annual profit. Shareholders can tepidly rejoice.

• IRS Uses Social Networks for Tax Probes [Web CPA]
The IRS has decided that the best way to discover your tax dodging ways is to look for clues in the one place no one can resist being completely and uncomfortably honest: Facebook.

Web CPA reports, “The Electronic Frontier Foundation has released documents uncovered from Freedom of Information Act requests, showing that the IRS as well as the FBI and other government agencies have been using social media sites like Facebook to collect information for investigations.”

Right. We suggest you stop talking about the six-figure 1099 you got that didn’t have any withholding and that you didn’t bother making estimated tax payments. Or roll the dice, lock up your privacy settings and continue with the financial TMI. Your choice.

• TIGTA: IRS on Track to Meet Goal of Answering 71% of Taxpayer Phone Calls After a 12-Minute Wait [TaxProf Blog]
The IRS is making good on its promise to ignore less than 30% of the phone calls from taxpayers needing help with their 2009 tax returns. They’re also getting to each caller in less than twelve minutes which is pretty good considering all the shit they’re putting up with these days (planes, packages full of personal items that might be a something, people having seizures, overzealous agents). If you’ve got an extra twelve minutes, call them up and thank them for their service.

Quote of the Day

Quote of the Day: Five Words on Big 4 Audits | 03.15.10

Caleb Newquist
March 16, 2010

“Our whole industry is useless.”

~ Unnamed Big 4 Auditor and GC reader

IRS Not Just Going After Loose Change: Audits of Millionaires Rising

Caleb Newquist
March 16, 2010

So this morning we learned that some IRS Agents decided to get huffy with a taxpayer over a sum that was less than a sketchy gas station party favor.

With this in mind, the more affluent of you may think that the IRS was finally recognizing that the millionaires in this country are the ones that make things happen. If the IRS would just BTFU and let the rich do their thing we’d get this economy back to blowing asset bubbles.

Unfortunately, Doug Shulman has remained steadfast in his commitment to making millionaires’ life hell by virtue of increasing the number of IRS audits on the wealthy.

According to a report in the New York Times, audits of individuals that earn at least $1 million are way up, “The federal agency increased its audits of taxpayers who earned $1 million to $5 million by 33 percent last year compared with 2008.” And if you’re in an even higher class of Joneses, your chances of getting audited are going up too, “[T]he I.R.S. increased its audits by 16 percent for those earning $5 million to $10 million last year. Audits of those who made at least $10 million rose by 8.5 percent, according to the data.”

The Times quotes a tax expert, Richard Boggs of Nationwide Tax Relief who then says the unthinkable (our emphasis):

“The I.R.S. is getting smart,” he said. “They are starting to better leverage their time, resources and talent in order to collect the most money. There is a definite shifting of the tide.” He said audits of those making at least $10 million rose slightly less than for other categories because so many of the ultrawealthy were already being audited.

We’re sure Mr Boggs is a top-notch tax guru but there is strong evidence that suggests that the IRS will still try to collect less substantial sums.

However, we have to admit, the numbers don’t lie. Millionaires out there, your chances of getting audited are going up and that sucks. But what should make everyone really nervous is the Service attempting to collect your loose change. Next time you see a nickel on the ground, we suggest you leave it there.

I.R.S. Says Its Audits of Wealthy Are Rising [NYT]

EY
News

Former SEC Chairman Pitt: Criminal Prosecutions Are Possible for Ernst & Young, Lehman Execs

Caleb Newquist
March 16, 2010

Okay then! Not exactly what you’d want to hear from a former SEC Chairman on Monday but what’s a former SEC honcho to do? Paint a rosy picture for everyone? Hell no! The man is gong to get real about this latest bank/accounting firm disaster. Barron’s ran down Harv to get his $0.02 on the whole Lehman/E&Y sitch and he he laid it out for Dick Fuld, E&Y, et al. as how to best handle this dicey situation.

Regarding the timing of a response to the report, you best explain yourselves ASAP and while you’re at it, none of that fancy-schmancy language. Everyone needs to be able to understand this:

If they want to avoid the logical consequences of the ReportÃ¢Â€Â™s conclusions-and none of those consequences are at all good for either Fuld or E&Y-they will need to come forward quickly with a very plain, easily understandable explanation of the errors or their defenses. The longer it takes them to do that, the less likelihood they will have of mitigating the publicity the ReportÃ¢Â€Â™s allegations have already received.

Consequences, you ask? How about indictments? How about no more SEC clients for E&Y? Next Andersen? Maybe! Shockingly, the SEC seems to be dragging its feet, per the usual standard operating procedure (emphasis original):

Many are wondering why there hasnÃ¢Â€Â™t been any action taken, and why the government hasnÃ¢Â€Â™t reported on the same events itself. Criminal prosecutions are possible, as are SEC civil actions. For Fuld, an SEC action could mean that he would forfeit his right to participate in the securities industry and possible disgorgement of monies he received over the years from Lehman. For E&Y, the SEC has the power to suspend their right to practice accounting, limit their ability to take on new clients, and impose remedial sanctions.

Yeah, that last part is kind of the crux. As you may recall, Andersen did not bite the dust because of the money it had to pay to Enron investors but because it’s reputation took such a bad hit that states began revoking their license even before the firm voluntarily surrendered its license to practice before the SEC. This occurred after Andersen clients started running away from the firm like a band of lepers. There’s no indication that’s what will happen to E&Y but there’s a 2,200 page report with E&Y’s name all over that says nothing flattering about the firm.

And say what you want about Harvey Pitt: bearded Bush yes-man, lawyer, whatever. As far as we can tell, he has nothing to gain by throwing out wild-ass speculation about what the possible outcomes could be.

Lehman: Criminal Prosecution Possible, Says Pitt [Barron’s]

Tax and SEC Deadline Watch: Are You About to Get Your Life Back?

Caleb Newquist
March 15, 2010

Doubtful!

But it is March 15th and corporate return extensions are being submitted en masse. Tomorrow is also the deadline for accelerated filers to submit their 10-Ks so auditors that are borderline delirious (and probably feeling frumpy) might get more than four hours of sleep this week.

For you tax jockeys, today could mean a couple of things: 1) this is a bump in the road and your life will be even more hectic as your deadbeat clients who are now realizing that April 15th is coming up fast or 2) you don’t touch anything that isn’t an 1120 and you’re in the clear for awhile.

And for you auditors, hopefully you haven’t forgotten our little teaching lesson from the previous deadline? Try and catch all the embedded “f*cks.” And hey! E&Y is still having Canadian Tuxedo Fridays for a couple more weeks so that’s something to look forward to, amiright?

Yes, there are some of you out there that are still billing monster hours with no end in sight. But look at this way, if you haven’t quit by now, you’re in it to the end, so you better just read this reminder from Deloitte and get back to it. It’ll be over soon enough.

EY
News

Inside Ernst & Young: Talking Points on Lehman Brothers

Caleb Newquist
March 15, 2010

If you’ve ever worked at a Big 4 firm, you’re aware that when big news hits the MSM, A) it’s never good and B) there is typically some sort of communication from management reiterating the firm’s position on the matter, everything is cool, thanks for your hard work, etc. etc.

With last week’s revelation of the bankruptcy examiner’s report on Lehman Brothers, E&Y seems to be following this protocol as it relates to the troops on the ground. As you would expect, leadership is keeping their heads about this while in the background in-house counsel is likely engaged in all-night smoky room strategy sessions.

We checked in with a few of our Ernst & Young sources to get an idea of what people were thinking and so far, there doesn’t sound like there are any signs of panic (yet!).

From one source:

Overall reaction from what I gathered is pretty muted. We did get a call from some of the higher-ups saying that we reviewed our work and that we feel that our audit was completely adequate and that Lehman’s failure was nothing more than the same systemic failure of two of the other major banks and that we plan to defend ourselves vigorously. Presumably, the examiner’s report really didn’t give any ah-ha moments….

[I]s there a possibility of a payout at some point? It’s possible. Are we worried that we’re the next Arthur Andersen? I don’t think so.

So at least on the surface, E&Y leadership is communicating that what came out in the report wasn’t surprising and that the defense of the firm’s position will be, as usual, vigorous.

That doesn’t of course stop the speculation:

I heard from a technical guy there was some concern because they didn’t issue a going concern opinion [for the previous audit].

And as you might expect, “I heard that [the firm] helped cook the books and is deep shit,” with the book cooking being arguable but pretty hard to prove and the “deep shit” aspect being a given.

Some Ernst & Young partners are probably losing sleep just thinking about the potential liability involved here but eventually they’ll get over it (until something else comes up).

No partner worth their salt got admitted to the partnership focusing on the downside. The problem is that when people use consistently use words like “deceptive” and “misleading” to describe Lehman’s accounting this reflects poorly on the firm since they were comfortable with the treatment.

And because it’s still busy season for a lot of people, they are focused on the shitstorm that currently surrounds them, not one that will likely drag on for years after they’ve left the firm (voluntarily or otherwise).

Anyone with more insight or thoughts on the matter, get in touch with us and we’ll keep you updated on the chatter inside E&Y.

Career Center

Job of the Day: Global Partnership Schools Needs a Controller

GoingConcern
March 15, 2010

Global Partnership Schools is looking for a controller to oversee the the financial reporting system and supervise the accounting staff.

This position requires 5 to 7 years experience and CPA or CMA license.

Check out the details for this position, located in New York, after the jump.

Company: Global Partnership Schools

Title: Controller

Location: New York, NY

Experience Required: 5 – 7 years

Description: To develop, maintain and oversee Global Partnership Schools and its associated entities’ financial systems while assisting CFO in all areas of financial management and company operations.

Responsibilities: Design and develop financial accounting systems; prepare budgets; supervise accounting processes; review and analyze financial reports. Coordinate with external auditors and tax consultants; Design, monitor and implement financial systems, policies and procedures; Meet finance operational standards by contributing information to strategic financial plans and reviews; implement production, productivity, quality, and customer-service standards; resolve problems and identify system improvements; Supervise accounting staff and carry out responsibilities in accordance with Global Partnership School’s policies and procedures and applicable state and federal laws; Accomplish accounting requirements by designing and maintaining accounting processes: including journal entries and general ledger, billing, collections, accounts payable, accounts receivable and purchase orders; supervise bank reconciliations and closing processes; Support annual budget processes; develop and maintain forecasts and models; ensure compliance with Generally Accepted Accounting Practices and cash management; Perform budget vs. actual analysis for Global Partnership Schools on a monthly basis; Prepare monthly financial accounts vs. profit and loss statement, balance sheet, and cash flows for management reporting; Manage payroll process by analyzing, preparing and inputting payroll data using automated system; ensure compliance with all applicable state and federal wage and hour laws; Coordinate with external auditors and tax consultants; prepare and file basic tax returns; Oversee projects as assigned by CFO.

Qualifications: 5-7 years of experience in Financial Management, preferably in an educational setting; CPA/CMA strongly desired; Accounting, cost accounting, financial planning and strategy, financial skills, financial software, analyzing information, implementation of Microsoft Dynamics and exceptional written and oral communication skills. Educational experience strongly desired.

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

KPMG

UANI Goes After KPMG for Iran Ties

Caleb Newquist
March 15, 2010

[caption id="attachment_6035" align="alignright" width="260" caption="There\'s no connection. See? Iran is way over here. "]

Annual Meeting of the New Champions Dalian 2009

[/caption]

It’s hard enough to be a Big 4 firm these days that you don’t need this. New York-based United Against Nuclear Iran (UANI) is a little upset with any and all companies that are doing business in Iran and just because you claim that you are a protector of the capital markets, that doesn’t earn you a free pass.

The Financial Times reports that UANI’s latest target is none other than the House of Klynveld and the lobby group sent a letter to Tim Flynn stating their displeasure with KPMG’s ties to their independent member firm in Iran, Bayat Rayan.

Flynn, who is stepping down as the Chairman of KPMG this summer, probably isn’t too psyched to have the firm lumped into the cross-hairs of UANI, who has relentlessly pressured companies to stop doing business in Iran.

The FT reported that the UANI set its sights on KPMG “after [a] week-long campaign against Ingersoll Rand ended with the Dublin-based diversified industrial company announcing on March 8 it was instructing its subsidiaries not to sell products ultimately destined for Iran.”

We contacted KPMG for comment but have not yet heard back regarding a response from the firm.

According to the letter, UANI will take “any and all action we deem necessary to hold KPMG accountable for its inappropriate business relationships with Iran,” which sounds pretty serious. Although we’re not sure what ‘any and all action’ will entail but for T Fly’s sake, we suggest he gets this resolved sooner rather than later. If he doesn’t, he can expect calls from Bill O’Reilly and his mug next to Ahmadinejad’s on the Factor.

KPMG is latest target for activists seeking to cut corporate ties to Iran [FT]

The IRS, Not Too Hung Up on Priorities, Demands Delinquent Taxes of Four Cents

Caleb Newquist
March 15, 2010

In this morning’s roundup we gave a couple of examples of why you should consider giving the IRS a break and remember that they’re civil servants just doing their jobs. All the violence, jokes and resentment are a little self-serving so maybe we should all just back off.

And then we heard about a couple of jackbooted agents (armed to the teeth, presumably) heading over to Herv’s Metro Car Wash in Sacramento to demand some delinquent taxes from the owner Aaron Zeff.

“They were deadly serious, very aggressive, very condescending,” says Harv’s owner, Aaron Zeff…

“It’s hilarious,” he says, “that two people hopped in a car and came down here for just 4 cents. I think (the IRS) may have a problem with priorities.”

How on Earth could two agents be ‘deadly serious, very aggressive, very condescending’ over four f—ing cents? How serious are they required to take their jobs? In the job description does it explain “the collection of delinquent taxes are to be vigorously pursued, regardless of the sum”?

Plus, the letter states $202.31 of penalties and interest are supposedly due on the delinquent portion. Has the IRS gotten so desperate for funds that it has delved into loan sharking? What’s more, Zeff has a letter from October 2009 stating that he ‘has filed all required returns and addressed any balances due,’ which now makes us think that the Service is pulling names out of hat and saying “who is our delinquent taxpayer of the day?”

It’s hard to believe that with just a few days prior to the first corporate filing deadline of 2010, that these two agents didn’t have anything better to do. Someone could have sent them to a sorting facility or, God forbid, have them review some returns. Jesus, put them on loan to the Utah branch if nothing else. They need all the help they can get over there.

IRS visits Sacramento carwash in pursuit of 4 cents [Sacramento Bee via TaxProf]

News
The JDA

Sam Antar Is Still Waiting for an Apology from Patrick Byrne and By the Way, Has Never Engaged in Naked Short Selling

Adrienne Gonzalez
March 15, 2010

Sam Antar knows an accidental criminal hero when he sees one: his cousin Eddie Antar was hailed as a champion of cheaply-priced consumer electronics in the Crazy Eddie days, though the poor saps in New York didn’t realize he could price his goods so cheaply because he was stiffing the government on sales and payroll taxes. Patrick Byrne and Overstock.com are pushing to corner the accidental criminal hero market by denouncing the evils of naked short sellers (bad bad bad), of which they seem to be convinced Sam is one.

While we’re on the topic of OSTK’s campaign to end evil naked short sales, I hereby volunteer to help Overstock edit their naked short selling page, by the way, as it’s not only a dry read but a tad poorly-written. Just sayin. Helpful girl that I am, it’s the least I can do.

Anyway, Sam’s still waiting for his apology from Patrick Byrne but in the meantime, would like him to take back those mean things he said about Sam naked shorting them to death. In an email to the SEC, Byrne himself and Overstock.com audit committee member Joseph Tabacco this weekend, Sam sets the record straight:

First off, I have never been involved any illegal naked short selling.

Second, how can Overstock.com label me as an “anti-Overstock.com blogger” when:

I correctly reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures.

I correctly reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement.

Third, please note Utah Attorney General Mark Shurtleff received $5,000 in cash from Overstock.com a few days prior to writing his defamatory letter about me. Both Chief Deputy Attorney General Kirk Torgensen and Deputy Attorney General Richard Hamp acknowledged that Shurtleff’s claims about me were false in various tape recorded conversations cited in my blog.

Sam goes on to explain that he’s actually doing Overstock a favor by uncovering fraud that its own audit committee has seemed to, um, overlook. You know, so they can set themselves right with the SEC and skip the restatement next year, filing all those extensions can get pricey and time-consuming you know.

See, Patrick, why so hostile? We’re all just trying to help!

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