Going Concern

Preliminary Analytics

Preliminary Analytics | 12.01.09

Caleb Newquist
December 1, 2009

• Arming Goldman With Pistols Against Public: Alice Schroeder – Team Jehovah is packing. [Bloomberg]
• Federal Estate Tax Bill Up for A Vote – Four weeks to go until the estate tax is repealed and now Congress is trying to vote on legislation to extend it. The original repeal passed in 2001. Our representatives at work. [Tax Girl]
• Grant Thornton LLP launches Aerospace and Defense industry group – Forget the “Global 6” thing, this will make GT an intergalactic firm. [Press Release]
• Ensuring Integrity: 4th Annual Audit Conference – Short on CPE? Get seven hours over at Baruch tomorrow for $345. Jim Peterson of Re: Balance will be on one of the panels and the keynote will be given by Robert Kueppers, Deputy CEO of Deloitte. [Baruch College]
• GE, Vivendi Forge Tentative Deal on NBC Stake – How does Jack Donaghy feel about this? [WSJ]
• Rothstein surrenders himself to the FBI – “Rather than a formal indictment, federal authorities will file what is known as ‘an information’ that would suggest that Rothstein has already agreed to eventually plead guilty.” [Miami Herald]

Review Comments

Review Comments | 11.30.09

Caleb Newquist
December 1, 2009

• Corporate America to workers: We’re not hiring, you’ll just have to work harder – Sound familiar? [NYDN]
• The Tax Code ENCOURAGES Leverage – Phase out the interest deduction? [Naked Capitalism]
• Year-end tax planning – Yes, it’s almost here. [The Fraud Files Blog]
• Bankruptcy Filings Continue to Surge – Business bankruptcies are up 52% for the same twelve month period from one year ago. [D&O Diary]
• Grant Thornton LLP Business Optimism Index reports little change with U.S. senior executives – The gist: few are hiring, they think the recession will last longer. [Press Release]

Uncategorized

The Latest Solution to Your State’s Fiscal Troubles

Caleb Newquist
December 1, 2009

CNN, who sometimes puts out pure and utter crap, has issued a 50-state ranking of potential tax revenues that could be earned if marijuana was legalized and taxed.
The ranking is based on “state-by-state marijuana consumption, from Jeffrey Miron (Harvard University, Department of Economics), Budgetary Implications of Marijuana Prohibition,” according to Paul Caron at TaxProf Blog. The total tax revenue projected by the study is $778 million.
Shockingly, California would benefit the most (especially since they won’t get additional money from Ahnuld), earning an estimated $105 million. A couple of notable states in the top twenty include Colorado and Oregon who both jumped considerably on the list as compared to where they rank in population. In other words, ganja use per capita is higher there (yes, that’s an intentional pun).
What the study fails to incorporate is the increase in sales tax revenues that would result from the surge in junk food and movie ticket sales. Despite this omission, the study demonstrates that all states would earn money that they would otherwise gone to some weird dude that only has black lights in his apartment.
Since this partial solution makes entirely too much sense, we expect the majority of states to continue to cut education and public service jobs to meet their budget goals.
Projected Revenues From Marijuana Tax [TaxProf Blog]

Uncategorized

Accountant Steals from Toys ‘R’ Us, Buys Hookers Bentleys

Caleb Newquist
December 1, 2009

Before we get started, we just want to kindly request that you keep any thoughts or comments you have about Geoffrey masks to yourselves, okay? Thanks.
Anyhoo, an accountant in the UK has pleaded guilty to 18 counts of theft of £3.7 million from Toys ‘R’ Us that he spent on hookers and other necessities including said hookers’ mortgages and their transportation needs.

[Paul] Hopes encountered most of the call girls while touring the country on business, drinking in the bars of luxury hotels. He spent about £500,000 of the money on “food, drink and entertainment”, according to one source. He also gave thousands of pounds to call girls and bought one a Bentley.
“He developed an infatuation with at least a couple of the girls,” said one investigator. “Sometimes thousands of pounds in cash were passed over in envelopes and they could do what they wanted with it.”
He paid off the mortgage of at least one escort — although he failed to do the same for the loan on his own home. According to the economic crime unit of Thames Valley police, there is no suggestion that Hopes’s wife or his two children benefited from the fraud in any way.

Yes, the man was married with children. And yes, the man was willing to make sure that a lady of the evening had a roof over her head before his own family. So, mild-mannered, grey-haired, double-chinned number crunchers that are leading double lives. Consider this your warning. Everyone will be looking at you differently.
Quiet Paul from accounts in £3m secret life of fast cars and call girls [Times Online]

Fraud

Cooked Books Du Jour: Home Solutions of America

Caleb Newquist
December 1, 2009

In today’s edition of “They just made the numbers up,” the SEC has charged Home Solutions of America, Inc. with inflating revenues based on phantom business deals related to restoration projects after Hurricane Katrina and other weather-related disasters.
According to the Commission’s complaint, Home Solutions issued several “materially false press releases” bragging about their kick ass results after doing work related to the damage caused by Katrina.
The scheme wasn’t exactly rocket science, as the former, CEO, CFO and one Director created phony invoices in order to record fake accounts receivable. They also decided that cash basis accounting was more their speed, expensing bonuses when they were paid rather than earned, in order to inflate their earnings.
All this hocus-pocus led to a run up in the stock price, which in turn, resulted in the former CEO, Frank Fradella selling over $6 million in shares based on the inflated price. The stock later tanked after massive insider stock sales, the filing of the lawsuit alleging fraud, and the Company’s announcement that they had to restate their financial statements.
And because we know you’re wondering, the most recent auditor we can find for Home Solutions is KMJ Corbin & Company LLP. We left a voicemail seeking comment but so far our calls have gone unreturned.
SEC Charges Hurricane Restoration Company and Executives in Post-Katrina Accounting Fraud [SEC Press Release]

Fraud

Canada Somehow Ranks Ahead of Mexico in PwC’s Global Economic Crime Survey

Caleb Newquist
December 1, 2009

That means our neighbor to the north ranks numero uno for North America.* They rank 4th in PwC’s report behind Russia, South Africa, and Kenya with 56% of the Canadian respondents reporting incidents of fraud.
And no, it’s not all because the country is full of crooks, it’s party because Canada has more ~~rats~~ informants:

So does Canada have more thieves in our midst, or are we just better at ferreting out perpetrators?
The study suggests there is a bit of both. Tipoffs from internal or external sources are higher in Canada than in other countries, as is our ability to detect fraud through electronic means. Automated systems used to detect inconsistencies or suspicious transactions accounted for more than 10% of frauds detected by companies in Canada. Thanks to rats and routers, more crimes are being reported in Canada then elsewhere.
By contrast, the PwC report argues that the overall decrease since 2003 in reported crimes elsewhere in the world does not necessarily speak to their better anti-crime fighting abilities, but rather to an “overall breakdown in anti-fraud regime controls which would usually assist in the detection of economic crime.”

So wait a minute, not only does Canada have more tattletales, they also have a superior ability to detect fraud “through electronic means”? Does anyone buy this? That must be the case with the other countries that are keeping Canada company in the top 5, right?
We’re more inclined to go with the notion that Canada doesn’t do such a good job discouraging would-be Mini-Madoffs. According to one expert: ‘We don’t put anyone in jail.’
There you have it. A simple dose of PMITA prison for the Earl Jones and Gary Sorenson types should get The True North out of the top 5.
Canada a fraud nation? [Financial Post]
*We will not be splitting hairs with anyone on whether Mexico is technically part of North America or Central America so don’t even bother going there.

Big 4

Are Other Small Big 4 Offices at Risk of Closure?

Caleb Newquist
November 30, 2009

Editor’s Note: Francine McKenna is a regular contributor to Going Concern
We came across a report in the Birmingham Business Journal (subscription required for full article) describing the reduction in professionals of the KPMG office there from 63 to 39 after two rounds of layoffs.
While there doesn’t seem to be any indication that the office will be closing, the reduction is significant enough to get us wondering if there hadn’t been talk about pulling the plug altogether.

On that note, we recalled the Manchester, NH closure we reported on last month and we called up the folks in Live Free or Die country to get the latest. While the receptionist was very helpful, the person we were eventually connected to decided that hanging up on us was the best course of action.
Undeterred, we reached out to E&Y’s national PR team and they provided us with the following statement:

After careful consideration and based on our analysis of the market, we have decided to close our Manchester office by the end of November. As part of that process, a number of our people will transfer to the Boston office, and our clients will be served from the Boston office.

Unfortunately, since “a number of our people will transfer to the Boston office” we can only assume that there will be a number of people that will not transfer to Boston.
We reached out to all the Big 4 firms regarding this issue, with E&Y being the only one to respond and they only addressed the Manchester office specifically. Wanting more perspective, we asked our contributor, Francine McKenna, for her thoughts:

Small office closures mirror the fortunes of local economies they operate in, including the limited number of clients some offices have been built on. Often just one/two parters wanting to be closer to home, have Managing Partner title.

There has been a considerable amount of chatter regarding office closures so we decided a thread on the issue was due. Discuss your thoughts/speculation on office closures (including any more details on E&Y Manchester) for your firm in the comments and keep us updated with your tips.

The JDA

Buy Nothing on Friday? How About Cyber Monday?

Adrienne Gonzalez
November 30, 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.
I’ve got something lined up for Jr Deputy Accountant this morning on Cyber Monday that I just had to repost over here. Normally it’s the other way around but I wanted to make sure to get this point across.

I always think about the guy who posted the comment about “you idiots worried about flashcards should have been the ones laid off” on a Ernst & Young layoff post we did here when I think about the crowd mentality that motivates bizarre events like Black Friday and Cyber Monday.
We did Buy Nothing Day in the hopes that you all would stay home Friday and save your pennies but I want to make sure my point is being received correctly. If you can afford it, go get it, no one cares. But don’t go just because the shiny advertisements are trying to seduce you with 60% off if you can’t even afford 95% off.
As I said on JDA this morning:

I will be doing my best to resist Cyber Monday since it’d be awfully hypocritical of me after evangelizing Buy Nothing Day but I have a vacation flight to catch in less than 2 weeks and only a few good shipping [sic] days left.
The point has always been this: if you can afford it, by all means, please buy it. If you want it and you bust your ass to pay for it and it won’t put you underwater to get it, have at it! Please!
I have “disposable income” down to a science and it doesn’t take a mathlete to do so: take what you need (I should not have to define “need” for you) minus what you make, putting investments and savings in the “need” column instead of dividing the take after needs – net income and viola [sic]. Go buy some shit.

Come on, CPAs, those numbers check out, right?
Like I said, I’ve got a trip coming up but no mortgage (or CPA exam retake fees. You know who you are — knock it off with the half-assing it through the exam already — it adds up) so I might need some crap for said trip. I’m not saying you should lock your doors and put your credit card on ice but I also have a job and residual writing income. Do you?
Stay away from Cyber Monday also if A) your boss is watching you and/or B) you can’t afford it. Otherwise go forth with my blessing and may all your security codes match your billing address.

Arnold is Probably Thinking That This Is One of Those Situations Where a Cyborg from the Future Would Have Come in Handy

Caleb Newquist
November 30, 2009

It just doesn’t seem possible that his Govinatorness would have a tax lien slapped on him because A) he’s married to a Kennedy and B) his annual Kindergarten Cop royalties alone should be enough to cover $79k.
Despite those two advantages, the IRS did file a lien in May for $79,064 that relates to 2004 and 2005, according to TMZ.

The claim by the Governor’s minions is about what you would expect them to come up with: a ‘paperwork snafu.’ In all fairness, the code section cited on the lien is 6721 which, as Tax Girl notes, is informational in nature:

Section 6721 deals with information returns, not taxes owed…Information returns would include such ordinary forms W-2, W-3, 1099, 1096, etc. If that’s the case, it could likely be related to household employee payroll taxes (household employees would include workers such as housekeepers and nannies). However, Schwarzenegger’s office is strongly hinting at the fact that it’s more removed than that – but then, they are politicians.

The other possibility that’s being floated around is that Ahnuld is “listed as a ‘responsible person’ by a business in which he is involved, possibly with a group of partners, and that the IRS might file liens against all of the business’s designated agents,” and thus, “might explain why Schwarzenegger may not have been aware a lien had been filed.”
So, as usual, no one really knows anything for sure and nobody is talking. The man has been a failed state to run people, he can’t be expected to be on top of everything.
Schwarzenegger’s Office Blames $79,000 Tax Lien on ‘Paperwork’ Snafu [Mercury News]
The Governator Blames Tax Lien On “Snafu” [Tax Girl]
See also: IRS Files $79k Tax Lien Against Gov. Schwarzenegger [TaxProf Blog]

Big 4

Deloitte, KPMG Will Make Out Okay on This Whole Dubai Thing

Caleb Newquist
November 30, 2009

If you spent the last four days in a tryptophan-induced coma, you may have missed the news that there’s a bit of a problem in Dubai. A $59 billion problem.

Long/short: Dubai World, the state sponsored investment company, asked for a six month extension on repaying principal and interest maturities to its lenders.

While this spooked a lot of people, the latest reports indicate that Dubai is of the opinion that it’s NBD.

Despite the claims by DW that nothing is fucked, it’s being reported that at least two Big 4 firms will get to bill the hell out of the parties privy to this latest debt-related SNAFU.
Dubai World has hired Deloitte to help them restructure their ~~house of cards~~ debt while KPMG is representing banks that hold $30 billion of the Dubai World debt in the negotiations. Now while we’d like to imagine tense, smoked-filled rooms with fists being slammed on conferences tables and screaming into speaker phones, it’s likely that it will be a much more cordial affair but we remain hopeful.

As for the other two usual suspects, why E&Y has been left out of the proceedings altogether is a mystery but the PwC/Becks/Dubai World connection seems like a good enough reason to us to keep P. Dubs on the sidelines. Call it a hunch.

We’ll keep you updated on the Big 4 angle of this story as it continues long into 2010.

KPMG lined up in $30bn Dubai rescue mission [The Independent]
Also see: Duh, Dubai! [JDA]
Deloitte Versus KPMG in Dubai World Saga [The Big Four Blog]

Preliminary Analytics

Preliminary Analytics | 11.30.09

Caleb Newquist
November 30, 2009

• Michigan Coach Rodriguez and the Tax Man – UM is paying $2.5 million of Rich Rod’s buyout obligation. The IRS might want to call that income. [TaxProf Blog]
• Why Accounting Matters – It matter. Why else would so many people (read: government bureaucracies) covet the oversight of it? [FEI Financial Reporting Blog]
• Suing Audit Firms re: Madoff: The Iguana In The Room – “Issues of control and the issues of the ‘agency’ relationship between the auditors’ international umbrella ‘coordinating’ firms and their member firms figure prominently in the Madoff feeder funds filings that include the international firms as defendants.” [Re: The Auditors]
• Jr Deputy Accountant Interviewed by Liberty Pulse’s the Pulse – Topics include Tim Geithner’s uncanny resemblance to Beavis. [JDA]
• Buyers Take a Pass on Some Failed Banks – Banks that seemingly have leprosy. [WSJ]

Preliminary Analytics

Preliminary Analytics | 11.27.09

Caleb Newquist
November 27, 2009

• Have a wonderful Buy Nothing Day friends. We’ll check on you gluttons for punishment (i.e. those of you working) later today.
• I’m a celebrity, get me out of Dubai! – Including you-know-who. [FT Alphaville]
• India Mahindra Satyam hit by new charges; outlook uncertain – Apparently this fraud could be way larger than the $1.5 initially reported. [Reuters]
• Open Letter to the Securities and Exchange Commission (Part 4): Patrick Byrne Ignores Real Issues As He Vilifies Grant Thornton – “I am not surprised by Patrick Byrne’s desperate lies given that every single financial report issued by the company since its inception has at least initially failed to comply with Generally Accepted Accounting Principles (GAAP) and SEC disclosure rules.” [Sam Antar/White Collar Fraud]
• You Lie! No, You Lie! – In case you can’t get enough of Patrick Byrne [Floyd Norris/NYT]

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