Going Concern

Career Center

Job of the Day: All I Want for Christmas Is a New Job

Caleb Newquist
December 8, 2009

If a new job is on your list to Kris Kringle, then you’re in luck because we’re going to start throwing a job out there for your viewing pleasure on a daily basis. It’s up to you click the links provided. We can’t do everything after all.
Check out the details for a Senior Alternative Investments Accounting Analyst position at Brown Brothers Harriman in New York, after the jump.

Company: Brown Brothers Harriman
Title: Senior Alternative Investments Accounting Analyst
Location: New York City
Description: The Senior Accountant – Alternative Investments will be responsible for the accounting, operational and administrative functions for BBH alternative investment products.
Responsibilities: The individual will be responsible for the core accounting and reporting (financial and tax) for these products, including maintenance of general ledgers, partnership capital accounts and unit prices for offshore share classes. The position will also be responsible for operations and administration of the products, including subscriptions, redemptions, cash management, investor reporting, and supervision of administrators. As well, this position will directly support the front office staff who works on the products. The individual will deal with front office management of BBH, product and portfolio managers of BBH, external relationships with external accountants, some external product portfolio managers and administrators as well as the Core Accounting group of Controllers.
Requirements: Bachelor Degree, Accounting Major preferred; 4+ yrs of relevant experience, preferably with exposure to alternative investments; Good knowledge of financial products, including alternative investments
See this job’s entire description over at the GC Career Center and visit the main page for all your job search needs.

Rumor Mill: The Latest E&Y Columbus Details Include $1 Beers

Caleb Newquist
December 8, 2009

We continue to receive details about the layoffs at E&Y’s Columbus office. The first bit of information is that one of the unlucky few — a recently promoted SA — was given one day to consider taking a transfer to another office. According to our source, the client the SA was serving caught wind of the dismissal and the client’s reaction convinced TPTB to let the SA stay on an additional week to finish his/her work.
Our source also indicated that new manager training was going on at the time and “those [managers] with potentially the best chance to speak on the behalf of those to be axed were all in sunny Florida oblivious to the proceedings.”
Oh and the dollar beers thing. As you may remember, the layoffs occurred the day before the office’s holiday get-down. The rumor is that the festivities had a tab in the nabe of $1,200, which included $1 beers.
This causes us to wonder a few things: A) No open bar? B) Beast or Natty Light? and C) we realize Columbus is a college town but $1 beers? Were there penny pitchers and $3 Jager shots too?
For reasons that escape us, we’re completely enamored with details that continue to emerge from this. Continue to keep us updated.
Earlier:
E&Y Columbus Layoffs Update
Layoff Watch ’09: Update on Ernst & Young’s November Round

Some Former New Century Execs Are Not Having a Good Monday

Caleb Newquist
December 8, 2009

Former executives of New Century, the Southern California subprime lender that filed for bankruptcy in 2007, are the latest examples on the SEC’s “We’re Back to Cracking Skulls” tour. The SEC has filed a civil complaint against former CEO Brad Morrice, CFO Patti Dodge, and controller David Kenneally.
From the press release:

In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. Defendants, however, failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. Defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that Morrice ominously entitled “Storm Watch.”
The complaint also alleges that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that it had to repurchase. In the face of dramatically increasing loan repurchases and a huge, undisclosed backlog of repurchase demands, Kenneally, with Dodge’s knowledge, made changes to New Century’s accounting for loan repurchases in both the second and third quarters of 2006. These undisclosed accounting changes violated generally accepted accounting principles and resulted in New Century’s improperly avoiding substantial repurchase expenses and materially overstating its financial results.

“Violated generally accepted accounting principles” has got to make more than a few people at KPMG nervous. Especially if you’re the partner that wrote, ‘As far as I am concerned, we are done. The client thinks we are done. All we are going to do is piss everybody off.’ We’re guessing he/she wasn’t on the ‘Storm Watch’ mailing list, otherwise KPMG might not have a $1 billion lawsuit on its hands.
SEC Charges Former Officers of Subprime Lender New Century With Fraud [SEC Press Relase]
Also see:
SEC Charges Former New Century Executives With Fraud [WSJ]
S.E.C. Accuses 3 New Century Ex-Officers of Fraud [DealBook]

Audit

Should Auditors be Able to Take Credit for Selling Non-audit Services?

Caleb Newquist
December 8, 2009

The partner track is a challenge, as we’ve discussed. The competition in the UK is fierce enough that some directors and manager in the UK have taken it upon themselves to ignore their firm’s policies regarding cross-selling:

Authorities frown upon cross-selling, which involves an auditor selling non-audit services to their audit client. The practice is a potential threat to auditor independence and the Big Four explicitly prohibit the practice from being considered in staff appraisals.
But that didn’t stop Big Four firm Deloitte’s audit directors and managers referring to cross selling when trying to secure a promotion, according to the [Audit Inspection Unit].
“A number of audit directors and managers referred in their performance evaluations to cross selling non audit services to their audit clients,” the report stated.

Maybe this isn’t as much of a problem Stateside, since the SEC has addressed services that are definitely off-limits, and a company’s audit committee has to approve all non-audit work performed by the auditors. If there was a perceived independence issue, one would hope the committee would say no dice and that would be the end of it.
However, if a potential service doesn’t fall into the SEC banned list and the audit committee gives the non-audit service the thumbs up, should a manager be allowed to point to the business that he/she introduced to the firm?
After all that hoop jumping, it would be hard for any manager to resist pointing to business that the firm eventually won. Since the Big 4 have policies against cross-selling coming up in appraisals, it might all be moot but any potential partner still wants to be able to show that they can drum up the business.
If you’ve got feelings or experiences on the matter, discuss in the comments.
Big Four partners seek promotions for cross selling [Accountancy Age]

PCAOB

The PCAOB’s Date at the Supreme Court Has Finally Arrived

Caleb Newquist
December 7, 2009

For those of you that don’t religiously follow the happenings over at the SCOTUS, we’ll remind you that oral arguments are being heard today in Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board.
The issue before the court, according to SCOTUS Wiki:

Whether the Sarbanes-Oxley Act is ��ration-of-powers principles – as the Public Company Accounting Oversight Board is overseen by the Securities and Exchange Commission, which is in turn overseen by the President – or contrary to the Appointments Clause of the Constitution, as the PCAOB members are appointed by the SEC.

An op-ed in today’s Wall St. Journal ignores the “legal hairsplitting” of the case and instead focuses primarily on the cost that companies have taken on implementing Section 404:

In 2003 the SEC estimated that the average company could do much of its internal controls work for $91,000 per year. In 2007, the commission acknowledged costs had gotten out of hand, particularly for smaller companies, and told the PCAOB to make the internal controls audits more cost-effective.
In 2008, the SEC’s Office of Economic Analysis launched a survey of public companies to judge the results, and it recently posted the findings on the SEC Web site, after collecting data from thousands of corporations.
Section 404 is still consuming more than $2.3 million each year in direct compliance costs at the average company. The SEC’s survey shows the long-term burden on small companies is more than seven times that imposed on large firms relative to their assets. Are the internal controls audits helpful? Among companies of all sizes, only 19% say that the benefits of Section 404 outweigh the costs. More respondents say that it has reduced the efficiency of their operations than say it has improved them. More say that Section 404 has negatively affected the timeliness of their financial reporting than say it has enhanced it.

Not surprisingly, The Journal (specifically James Freeman) is pulling for the Plaintiffs in this case without presenting any of the positive contributions of SOx. Ultimately, the nine justices will determine the fate of the PCAOB, which if found unconstitutional, could have wide repercussions on all the auditors out there. We just spent the better part of a decade getting this SOx stuff down, and now it’s possible that it could’ve been a giant waste of time. Makes you feel good, doesn’t it?
For those of you interested in this case further, you can hear the oral presentations via podcast, over at SCOTUS Blog.
We invite our legal friends with perspective on this case to share their insights and predictions on this case. Hell, even if you’re not a legal scholar, share your thoughts. And just for fun, take a stab on what you think the outcome of the case will be by voting in the poll below.

Online Surveys & Market Research

The Supreme Case Against Sarbanes-Oxley [WSJ]

The Latest Feel Good Story Involving the IRS

Caleb Newquist
December 7, 2009

Were you concerned that the IRS wasn’t auditing enough poor people? Well here’s a story that will put those fears to rest: The IRS audited a woman in Seattle who made less than $19,000 a year because she was too poor.
Rachel Porcaro was summoned to the IRS after being flagged for an audit. She was told that based on what she was earning, she couldn’t possibly be supporting herself and her two sons:

“They showed us a spreadsheet of incomes in the Seattle area,” says Dante Driver, an accountant at Seattle’s G.A. Michael and Co. “The auditor said, ‘You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle.”
“They thought she must have unreported income. That she was hiding something. Basically they were auditing her for not making enough money.”

Initially, the Service told Ms. Porcaro that she owed the Feds $16,000. When Dante Driver sent a letter to the IRS explaining how he thought the code was being wrongly interpreted, the IRS turned around and audited Ms. Porcaro’s parents:

Rob and his wife, Patty, had to send in house blueprints, bank statements, old utility bills. Rachel was asked to prove her children were hers, as well as document the money she’d spent on her children’s clothes, health care and so on.
They racked up $10,000 in accountant bills — $8,000 of which Driver is trying to recover from the IRS.
In the end, the parents were cleared. The IRS also backed off trying to reclaim Rachel’s earned income tax credit.

Ultimately, Ms. Pacaro had to pay over $1,400 in back taxes, penalties, and interest because she couldn’t provide enough receipts to document that she could claim her sons as dependents. Her parents are also not allowed to claim them as dependents, so for tax purposes, the two boys simply don’t exist.
Even if you’re a stickler for tax law, the time and expense of this audit hardly seems worth $1,400. The IRS soldiers likely would claim that they were just following orders but the Service was mum on this story. You can safely bet they won’t be apologizing either. The moral seems to be, regardless of your income, keep those receipts people. Yeesh.
$10 an hour with 2 kids? IRS pounces [Seattle Times/Danny Westneat via The Consumerist]

Uncategorized

Because There is No Shortage of Criminals

Adrienne Gonzalez
December 7, 2009

Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Over the weekend, I had the pleasure of speaking with Sam Antar of White Collar Fraud. I won’t give him too many props (lest he think his wily criminal charms got to me) but our conversation was both relevant and disconcerting.
In case you aren’t acquainted with Sam, he’s the ex Crazy Eddie CFO who ripped them off and now does speaking tours talking about, well, crime. But there’s a lot more than that at work here, that’s just his schtick.

So what did I learn?
I believe my editor thinks I’m a doom and gloomer so here’s some good news: besides suggesting we start training more qualified forensic auditors fresh out of school, Sam insists there is a chance for real financial reform.
Do you take your reform advice from an ex-criminal? I remind you here that a tax cheat is in charge of the IRS, do with that information what you will.
Anyway, the point here is that financial statements lack integrity. Without integrity, investors are groping in the dark and criminals are able to execute their schemes. Foreign investors are scrambling to leave US capital markets, could that be because our statements are – generally speaking – unreliable?
So. Sam’s 3 step plan to restoring sanity to financial statements. Take it for what it is.
1. Redefine audit committees as truly independent. No member of the audit committee should derive a salary or other compensation from stock options or stock holdings. Period.
2. Committee members should be qualified. CPAs and securities lawyers are qualified to sit on an audit committee, not marketing managers and other “average” sections of the corporate population.
3. Forensic accounting should be standard curriculum in university accounting programs. Don’t eliminate 404(b), if a corporation can’t afford the audits required to be a public company, then don’t become one.
We’ll have to agree to disagree on that final point, I don’t think tedious audits are the solution. However, perhaps if we had more qualified auditors out in the trenches, I might be inclined to be slightly less skeptical about the effectiveness of more softcore audits.
Stay tuned as we’ll be picking Sam’s brain again soon.
GC Posts Referencing Sam Antar:
Grant Thornton: Patrick Byrne’s Pants Are on Fire
Obvious Sign of Fraud: You’re Having Sex with the Client

Preliminary Analytics

Preliminary Analytics | 12.07.09

Caleb Newquist
December 7, 2009

• Taking Tiger By the Tax Tale – Two things are for sure, Elin will come out of this thing just fine and Uncle Sam will certainly be looking for his cut. [Tax Girl]
• Fresh Pay Skirmish Erupts at AIG – Pseudo-government employees continue to threaten to jump ship if their civic-duty comp is cut too much by the pay master. [WSJ]
• Going to School on Revenue Recognition – Tom Selling digs into Apollo Group, Inc.’s (parent of University of Phoenix) SEC filings to try and figure out what the Commish might be interested in. [The Accounting Onion]
• Bloomberg eyes more acquisitions – In its quest for world domination of financial information, the ‘Berg is “planning a further year of aggressive investment and may make more acquisitions”. [FT]

Review Comments

Review Comments | 12.04.09

Caleb Newquist
December 5, 2009

• IRS & California Slap $1.9m Tax Liens Against Pamela Anderson – And her two friends. [TaxProf Blog]

• How to Keep Your Firm Out of Trouble in this Holiday Party Season – Not listed: Don’t let interns attend. [CPA Trendlines]

• Superstar Finance Blogger Week 3: Francine McKenna at re: The Auditors – Hey, we’ve heard of her! [Blogging Suits]

• House Approves 45 Percent Estate Tax Extension – So much for dying in 2010. [Web CPA]

• OTB Enters Bankruptcy Protection – Speaking of death. Will you miss the plight? [City Room/NYT]

Uncategorized

Layoff Watch ’09: Crowe Horwath

Caleb Newquist
December 5, 2009

We just received word that Crowe’s CEO, Chuck Allen left a firm-wide voicemail announcing that the firm was having layoffs.
According to our tip, CH had “a lot of forced time off during the summer” and that “Oakbrook assurance has seen some movement.” Also, our source indicated that “Firm isn’t announcing specifics besides that its happening.”
So far, our calls and emails to Crowe Horwath have gone unreturned. We’ll update you with any comment or further information they may provide. If you have details on Crowe Horwath layoffs from any office, send the details to tips@goingconcern.com and discuss in the comments.

PwC’s Moritz: ‘We Will Have Base Increases Next Year’

Caleb Newquist
December 5, 2009

Now we’re talking! Nothing like calling your shot.

Moritz did his best Joe Namath today on PwC’s firm wide webcast today (is it over?) so all that speculation of P. Dubs phoning in 2010 can be put to rest. WRITE. IT. DOWN.

If you’ve got other thoughts or details on the web cast, get in touch and discuss in the comments.

E&Y Columbus Layoffs Update

Caleb Newquist
December 5, 2009

Just a little more context on the latest E&Y layoffs that we reported on this morning.
A new source has indicated to us the cuts were absolutely based on utilization:

The staff confirmed that no counselor was addressed.
The staff confirmed that no personnel with whom the individual worked within the past 6-8 months was consulted, including manager and above.
The staff confirmed that no performance reviews since April 2009 were referenced.
You better have a strong anchor client that keeps you going year round, and good luck if you lose them. So much for people.

We don’t feel further comment is necessary but if you have any thoughts, please share them in the comments.

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