Going Concern

Hollywood Discovers the Comedic Gold Mine That Is the IRS

Caleb Newquist
February 12, 2010

No not a feature film. Introducing more than thirty minutes (we assume) of Doug Shulman would be too much for boob-tube enthusiasts to bear.

Ron Howard’s production company, Imagine Entertainment, is scheduled to shoot an unnamed pilot for Fox that will center around an IRS district office. It will star David Krumholtz, of Numb3rs fame, who will play Spencer, an agent who is “trying to find nobility in his work.”

This already sounds hilarious. Not to mention that the mere thought of accountants with guns is hysterical. Plus, the fact that the IRS Commissioner doesn’t prepare his own tax return because he thinks the tax code is too complex is just one example of the real sitcom that is the IRS.

Plus the writer of the pilot is Brent Forrester, a current writer and producer for The Office so we’re guaranteed the awkward scenes will be authentic in both words and actions.

The Hollywood Reporter states that the IRS sitcom is “Howard’s first passion series project since the Emmy-winning ‘Arrested Development,'” so now we’re double-excited. The subject matter on its own is hysterical but if you add Arrested Development passion with The Office awkwardness, plus the Numb3rs guy? This might be best non-Jack Bauer reason to watch Fox.

[h/t TaxProf Blog]

Accounting News Roundup: Madoff Family Members to Face Tax Fraud Charges; Satellite TV Sues Over Taxes; Accountant Steals from Homeless | 02.12.10

Caleb Newquist
February 12, 2010

Ed. note: Many apologies for the downtime yesterday. As I understand it, the combination of Olympic Fever and President’s Day caused our servers to start the weekend a couple of days early. Fortunately we have our best people on it and the servers have been pistol-whipped back into submission (for now). Please bear with us.

• Prosecutors Set Sights on Madoff Kin [WSJ]
Specifically on brother Peter and spawn Mark and Andy who all still deny knowing anything. The charges are said to be tax-fraud which indicates that history’s worst auditor David Friehling, who also prepared the Madoffs’ tax returns, is giving the prosecutors golden information.

Peter worked as the Chief Compliance officer at BLMIS while Mark and Andy worked in the “market-making division”. In Irving Picard’s suit against Madoff family members, it states that between the three of them they withdrew over $50 million after investing under $2 million.

In other Madoff news, ex-“CFO” Frank DiPascali was released yesterday on bail pending sentencing. He is also cooperating with prosecutors and his attorney said that he was ‘thrilled’, presumably since, you know, he’s out of jail for a few days before he goes back forever.

• Satellite TV sues to end taxes [DMWT]
Purveyors of reality TV and other small screen creations, Dish Network and DirecTV are suing Massachusetts over a “5 percent tax on satellite services”.

Along with suing Mass, the companies have put their lobbyists to work:

A federal bill, H.R. 1019, also is pending in Congress. The State Video Tax Fairness Act would prohibit any state from imposing a discriminatory tax on any “means of providing multichannel video programming distribution services.” As for the term discriminatory tax, the legislation defines it as one where the net tax imposed on one program provider is higher than what is assessed another.

And God knows the satellite TV companies can’t be discriminated against. Apparently these taxes will prevent them from providing hundreds of channels that no one watches. We wouldn’t be able to watch Jersey Shore without these companies. Did you ever think about that?

• Reebok Founder’s Accountant Accused of Stealing $25 Million [FN]
Paul Fireman paid his longtime accountant Arnold Mullen $800,000 a year. Figuring he had more coming to him, Mullen stole $25 million more from Fireman and the Reebok founder’s charity for the homeless. Jesus, man. Try asking for a raise.

CFOs

KPMG Survey: Cost Cuts May Not Be Sustainable

GoingConcern
February 12, 2010

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

Corporate executives have really gotten to show off their cost-cutting skills during the financial downturn and the ongoing, tepid recovery, as many have managed to push earnings up even as revenues sagged.

But, in looking forward, they have to wonder what cost those reduced expenses came at.

According to a survey released by KPMG on Wednesday, board members and senior executives are doing just that. Forty-five percent of the respondents expressed concern about the sustainability of the cost reductions undertaken by their companies in response to the economic crisis.

“Significant cost cutting can create a variety of risks to the business, both near- and long-term,” said Mary Pat McCarthy, KPMG Vice Chair and Executive Director of the Audit Committee Institute, in a press release.

In particular, two-thirds of those surveyed said they were most concerned about the impact of cost cutting on their company’s employee talent and training. Other concerns include the impact of cost-reductions on internal controls (36 percent), fraud risk (25 percent), management of outsourcing and supply chain (24 percent), financial reporting integrity (21 percent), and the Foreign Corrupt Practices Act and compliance issues (9 percent).

Some 13 percent of the respondents said their companies had not implemented significant cost reductions.

While previous recessions were characterized by short-term belt-tightening and a quick return to normal, KPMG noted that current cost reductions may be much longer-term, and possibly permanent.

The long-term nature of the cuts is understandable in light of the executives’ economic outlook. The survey found that 45 percent of respondents don’t expect the U.S. economy to reach pre-crisis growth in terms of investment, employment and productivity before at least 2013, and 22 percent said it would be beyond 2014.

Another 17 percent were particularly pessimistic, saying the economy would not see pre-crisis growth “for the foreseeable future,” while 15 percent said recovery could come in 2011. Just 1 percent said recovery could occur in 2010.

Similarly, in a separate response, 66 percent said American companies will not return to “business as usual” and will operate in this new environment through at least 2013.

CFOs

Three Challenges for the New Twitter CFO

Caleb Newquist
February 12, 2010

The micro-blogging phenom Twitter has faced a lot of doubts about its business plan as its popularity has exploded. The speed that the Company has seen and thus, the demand for monetization, led to the Company announcing the hiring of Ali Rowghani, currently CFO at Pixar, as the Twitter’s first financial chief.

The Company raised $100 million back in September and entered into licensing agreements with both Microsoft and Google to feed real time information into their search engines.

This all sounds good but Mr. Rowghani still has his work cut out for him. Here are three challenges he will face as the first CFO of Twitter:

Help Develop a Sustainable Business Model – So you’ve got this great idea, micro-blogging at 140 characters a pop. Now what? Sure you’ve struck deals with Microsoft and Google but are is there anything else cooking? How do you monetize how professionals use Twitter that doesn’t involve what you just ordered for lunch? Plus, how do address stats like these:

– 72.5% of all users joining during the first five months of 2009. 
– 85.3% of all Twitter users post less than one update/day
 - 21% of users have never posted a Tweet 
– 93.6% of users have less than 100 followers, while 92.4% follow less than 100 people. 
– 5% of Twitter users account for 75% of all activity

Control Expenses – Any startup company has to run a tight ship, regardless of their popularity and Twitter is no exception. The company is hiring engineers and other professionals that won’t come cheap (unless they pay them in equity, more on that later) and their headquarters is located in downtown San Francisco where rent doesn’t come cheap. That $100 million will burn up awfully fast if they don’t develop solid revenue streams and don’t keep costs down.

Build a strong infrastructure for the finance and accounting functions – Ultimately the CFO is responsible for the finance and accounting departments for a company. We’ll go out on a limb and say that the founders of Twitter know squat about setting up either, despite their importance within the organization.

Mr. Rowghani will have to get these functions in tip-top, especially if the pressure to take the company public proves too much to bear. Even if the Company manages to resist this route — like Facebook has so far — they still need reliable financial reporting, especially if they decided to do some less than vanilla transactions like equity comp. Additionally, they need people that will be able to lay out good financing options for the development of the Company. Whether that means borrowing money (not the best idea for a startup) or raising it through new investors (private or public) it will take airtight planning and the CFO will oversee all of it.

For the new CFO to succeed he will have address these issues and more as he balances the pressure of a weak economy and cautious investors concerned with guarding their capital.

PwC Basks in the Oscar Gold

Caleb Newquist
February 12, 2010

Man, PwC is on a tear this week. Along with the announcement of the three-peat yesterday for the Training 125, the firm also rolled out its press release on the upcoming Academy Awards.

The firm is proudly counting the ballots for the 76th year in a row but this year there are ten best picture nominations and that’s a new wrinkle for the vote counters at P. Dubs.

Now we’re not going to insinuate anything like Slate did back in 2007 where they somehow made a superficial connection between scandals at PwC to their ability to count ballots. That’s just foolhardy and we wouldn’t entertain such a notion here.

Quite the contrary, this should be the biggest slam dunk engagement that PwC has. Sure there are some archaic mechanical issues (e.g. the U.S. Mail) but at the end of the day they’re just counting ballots. The biggest risk that PwC faces is someone trying to rip their arms off with the briefcases still attached. Besides, we’re sure there is a security device on the briefcases that will destroy the entire contents if opened by anyone other than a PwC partner.

But we digress.

Back to the boilerplate press release, PwC drops all kinds of facts on us including that it takes ten total days (between the nominating and the final ballots) and approximately 1,700 “person-hours” for the team to count the ballots by hand.

This begs the question: could the Oscars be indirectly responsible for PwC being embroiled in the wage and hour lawsuits? Is our insatiable demand for red carpets and Brangelina driven the importance of this annual event beyond health care reform, financial regulation, and U.S. GAAP/IFRS convergence and thus, created the sweatshop engagement that is the counting of the Academy Award ballots?

This prestigious engagement may have its benefits (e.g. tuxedos, the opportunity for awkward sexual advances on celebrities) but at what cost, dear reader? What cost?

The JDA

Bernanke: Bailouts ‘Imposed No Cost on the Taxpayer’

Adrienne Gonzalez
February 11, 2010

Ben Bernanke claims there is “no net impact” to U.S. taxpayers involved in bailing out the TBTF banks, state unemployment funds, car companies, insurance companies, GSEs; need I continue? You know the list by now.

The impact in question comes from the size of the Fed’s swollen balance sheet, surely you are familiar with the number by now. I don’t have to remind you little beancounters that the Fed writes its own accounting manual, so take that “balance sheet” for what it is worth.

“These programs, which imposed no cost on the taxpayer, were a critical part of the government’s efforts to stabilize the financial system and restart the flow of credit,” said Bernanke in prepared remarks to the House Financial Services Committee. Not even a snow day could keep him from this one.

Have you ever seen a “company” drastically reduce the size of its balance sheet? Me neither. Next.

The indirect “net impact” of all of this, of course, is a drag on unemployment. While on a federal level, inflation will have to run hot enough to cover a growing deficit, bankrupt municipalities and states are bleeding businesses and residents dry. So who will be financing the Fed’s unloading of assets? It is unlikely to be the extinct “middle class”.

As many of you already know, CPA Trendlines tracks accounting unemployment numbers regularly. I know some of you are prone to stick to what we did last year but last year didn’t work and we’re about due for some sort of revolt. The BLS revisions represent a significant material deficiency in what we’re being told versus what is actually happening; you kids wouldn’t eat up the layoff posts if it didn’t exist.

So there is Bernanke’s net impact. Need I continue?

Unemployment taxes are up for those who can still afford a workforce. Encouraging.

Though not measurable in the same way as tax increases and wild inflation, the regulatory impact is also one worth recognizing. How many bad rules will result? I don’t do the math part, sorry. Let’s just sit around and let the rest of the world dictate how we can rebuild the integrity of our financial statements (?)

I’m not sure what “net impact” meant in economics class to our esteemed Fed Chairman but where I come from, bailout measures do appear to have a net impact on taxpayers, whether or not it’s actually called tax. I’m sure some tax accountants can agree with me on that?

Accounting News Roundup: Obama Is ‘Fierce’ for the Free Market; Bailout of Greece Imminent?; Shoeboxed.com Solves Receipt SNAFUs | 02.11.10

Caleb Newquist
February 11, 2010

Obama Says He’s ‘Fierce’ Free-Market Advocate, Rejects Critics [Bloomberg]
The POTUS has a message for everyone that likes throwing around words like “socialist” or “Mao”. He and his gang are pro-business, “President Barack Obama said he and his administration have pursued a ‘fundamentally business- friendly’ agenda and are ‘fierce advocates’ for the free market, rejecting corporate criticism of his policies.”

Now whether or not you buy this story, the Berg is reminding us that things haven’t been so bad since BO took office, “the Standard & Poor’s 500 Index of stocks has risen more than 25 percent and the economy rebounded from a 6.4 percent decline during the first three months of last year to 5.7 percent growth in the fourth quarter.”

Whether you believe that President secretly dresses like Castro or you’re happy that Bloomberg is giving him credit for the “rebound” after a year in office, we expect him to run with the “turn around” story. He’s got to help out all the poor saps running for re-election after all.

EU Leaders Agree on Greece Support [WSJ]
Since things are getting slightly out of hand over in Greece some of the European leaders got together to talk about it. They came to the conclusion that they can lend a hand ‘if needed’.

Since the world seems to be in the habit of bailing out irresponsible behavior — according to the Journal, “Greece for years violated rules against overspending” — we’re guessing the “needed” part is imminent:

Greece’s fiscal problems—a heavy debt burden and wide fiscal deficits—have spurred fears of a sovereign default and sowed worry of serious trouble in the 16-nation euro zone. Thursday’s summit has become the bloc’s clearest opportunity to reassure financial markets.

It wasn’t clear that investors would be soothed. The euro, which has gyrated for several days amid rising and falling hopes of help to Greece, slipped slightly after Mr. Van Rompuy appeared in front of the stately library where the leaders were meeting to read his statement.

Zee Germans aren’t so thrilled with the whole idea since, “The euro zone is built around the idea that each nation manages its own fiscal affairs,” and they’re notoriously thrifty. Of course letting Greece go the way of Iceland is a big risk and EU members apparently have even floated the idea of ringing up the IMF which some feel would be an abomination.

• Service Offers Receipt Scanning for Accountants [Web CPA]
Perhaps you’ve heard of Shoeboxed.com, which if you have, why on Earth aren’t you sharing it with every accountant that you know?

The long/short is that your client walks in with his/her records for the past year so you can prepare their business’ tax return. You give them the crook-eye since you’re already drowning in files. You tell them to send all their receipts to Shoeboxed who will scan them in and “the data is then extracted and entered, automatically categorized, and securely archived online.”

You, the accountant, can now access this information through your Shoebox account in your favorite tool: spreadsheets. Not only will this cut down on the paper in your office, you won’t have to physically threaten as many clients. Everyone wins!

News

Quote of the Day: Auditors in Love | 02.10.10

Caleb Newquist
February 11, 2010

“[If I Were An Auditor] tells the story of two auditors (would-be auditors) in love, who view their relationship through the lens of accounting and auditing.”

~ Edith Orenstein, editor of the FEI Financial Reporting Blog on the rom com created by her and many others in Second Life (just in time for St. Val’s).

Big 4

AIG Adopts Big 4 “Forced Ranking” Method

Caleb Newquist
February 11, 2010

Good news servants of the capital markets! Remember how we talked last summer about forced ranking and how it’s rampant within the Big 4 performance ranking system? No? Put it right out of your minds? Had occurred to you because you’re delirious from the lack of sleep, poor diet, et al.?

Well as soon as busy season
is over, we’re sure it’ll come back to you; in the meantime, you’ll be happy to know that everyone’s favorite ward of the state, AIG is now joining you in implementing what might be the worst possible method of rewarding its employees.

American International Group Inc. is rolling out a plan to revamp how it doles out annual incentive pay to its employees, as the government-controlled insurance giant moves away from retention bonuses that have proved controversial over the past year.

The new initiative, called a “forced distribution” system, is being pushed by Chief Executive Robert Benmosche. Under the plan, thousands of AIG employees will be ranked on a scale of 1 to 4 based on their performance relative to their peers, and their annual variable compensation, which may include bonuses, will be determined by their rank. Individuals ranked in the top 10% will get far more relative to their peers.

Yes! The 1 to 4 ranking scale. That’s not quite as shrewd as PwC’s 1 to 3 scale and it’s at least simpler than KPMG’s 9 box but AIG employees have every right to be concerned about this arbitrary ranking system.

Warden Robert Benmosche doesn’t care though, there were too many rock stars, “Mr. Benmosche said performance-appraisal systems previously in place at AIG weren’t discriminating enough. In one case, he said, there was a ranking system with four categories, but about half of the people got the highest rating, and half got the second rank. ‘You can’t have 50% in the top,’ he said.” Bobby B also said that AIG is “unlikely to impose a requirement that underperformers leave.” Write that one down.

Our contributor Francine McKenna who has written both here and on her blog about forced ranking told us, “Investors will get contrived ‘performance’ enforced by cutthroat atmosphere that further encourages excessive risk taking.”

In addition, Ravin Jesuthasan a “talent-management” consultant (not involved with AIG’s change) who was quoted in the Journal (our emphasis), ” [Mr. Jesuthasan said] the approach can work in turnaround situations by helping to foster more accountability, but could be risky if not communicated well or “if links to consequences like compensation and employment are not properly thought through.”

Any of that sound familiar?

AIG Plans Revamp on Pay [WSJ]

CFOs
Fraud

(UPDATE) Ex-Hospital CFO Pleads Guilty to Tax Evasion, Health Care Fraud

Caleb Newquist
February 11, 2010

In dubious CFO news, Vincent Rubio, the former financial chief at Tustin Hospital and Medical Center, agreed to plead guilty yesterday for paying kickbacks to “marketers” who recruited homeless people from the Skid Row area of Los Angeles.

Rubio pleaded guilty to health care fraud and tax evasion; he was the fifth person to charged in the investigation that is still ongoing. He faces fifteen years in prison After the homeless people were treated, the hospital billed Medicare and Medi-Cal for unnecessary treatments.

The AP piece doesn’t have much to it so we’re got to wondering all sorts of things like: A) Who discovered this fraud? Was it — gasp — the auditors? B) what were these unnecessary treatments? We’re these displaced individuals getting checked for hernias or less intrusive procedures? C) how much was Medicare and Medi-Cal charged? Are we talking Madoff-esque numbers? D) When the homeless were finished up at the hospital did they strap them to a rickshaw and send them back out in the streets or did they try to help them for real?

We called the hospital to find out more and we were connected to a spokesperson, who told us that she could not comment on the matter. She informed us that our message would be relayed to the hospital’s President, James Young. At the time of posting, we had not heard back from him. We’ll update this post with any comment or further information.

Ex-hospital CFO pleads guilty in homeless scam [AP via SF Chronicle]

UPDATE Friday, February 12th: We received the press release from Pacific Health, the owner of the Hospital:

February 11, 2010

Press Release

Pacific Health Corporation learned of the allegation that a third party made improper payments to Vince Rubio on November 30, 2006. Upon receipt of the allegation, Pacific Health Corporation contacted its outside counsel to investigate the allegation.

Within one day of the allegation being received, Pacific Health Corporation took employment action in the matter, placing Mr. Rubio on leave. Within one week, Pacific Health Corporation terminated the employment of Mr. Rubio.

After the completion of the its internal review and taking the employment action, Pacific Health reported the matter to law enforcement officials. That took place in early 2007.

(UPDATE) PwC Did Not Foresee the Sexting Phenomenon

Caleb Newquist
February 11, 2010

We heard a rumor today that PwC is currently renegotiating their cell phone contract because, yes, they underestimated the amount of texting that would be done by employees on work phones. Foiled by Gen-Y again!

We realize it’s hard to believe that the numero uno Trainer would somehow not educate its people to avoid sending hundreds of sexually explicit messages to the person in the next row when they simply could have pull together some instructions on cubicle sex. This would have alleviated at least some of the problem.

Well it’s too late now, you randy fools. You’ve no doubt cost the firm millions in charges because you couldn’t compose yourselves.

On the other hand, who were the geniuses sitting around 300 Mad trying to figure out what the texting plan was right for P. Dubs? We know Bob Mortiz wasn’t in on it. Did they consider the fact that PwC employees might be a bunch of savages that would be spending every waking hour sending photos and dirty limericks to their spouses and FWBs?

We understand that firms are trying to save money these days but jesus, it’s common sense to spring for the unlimited texting plan.

UPDATE, Friday, Feb. 12th: We heard back from a source who shared this:

I think they give us something like 100 a month (not positive) which doesn’t affect me, but some people in my office laugh about how much they go over.

Let’s say it is 100 a month. Depending on your prowess, one sexting encounter could conceivably use up a whole month. Someone tell PwC Ops (or whoever is in charge of these things) to go for the unlimited plan.

Career Center

Job of the Day: Deutsche Bank Needs Your GAAP and IFRS Knowledge

GoingConcern
February 10, 2010

Deutsche Babk need someone to join their Finance Division; preferably someone that has knowledge of both U.S. GAAP, IFRS and bonus points for you if you know anything about German HGB accounting.

The position requires at least four years experience and a CPA/MBA is desirable.

Get more details after the jump.

Company: Deutsche Bank

Title: Finance Manager – VP

Location: New York, NY

Experience: 4 – 8 years

Selected responsibilities: All DB legal entity financial reporting for a number of subsidiaries supported in DE. This includes all general ledger balances, and reporting oversight for risk, intercompany reconciliation, regulatory and management purposes; Requires compliance with corporate and regulatory policies. Must be able to identify when a transaction may impact certain key policies, and know when to refer issues to key contacts in treasury, accounting policy, legal, tax and regulatory areas; Work with Accounting Policy and DB Advisory to properly apply GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) to transactions initiated by business lines that will be recorded on legal entities.

Qualifications: BS/BA Accounting and 4-8 years work experience in financial accounting; CPA or MBA is desirable, but equivalent experience acceptable; Experience with SAP, Essbase and or BCS (Business Consolidation System) a plus; Good knowledge in IFRS GAAP and/or US GAAP needed. Any knowledge of German HGB accounting standards a big plus.

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

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