Going Concern

Uncategorized

Thanks to This Week’s Advertiser

Caleb Newquist
December 2, 2009

A quick word of thanks to this week’s advertiser on Going Concern:
• Verizon Wireless
If you’re interested in advertising on Going Concern, email us at advertising@breakingmedia.com. Thanks!

Uncategorized

Hertz Has Second Thoughts About Suing Audit Integrity

Caleb Newquist
December 1, 2009

Turns out Hertz doesn’t have the stones to follow through on its lawsuit against Audit Integrity, as the car rental company has dropped its libel suit against the independent research firm.
Audit Integrity issued a report back in September that stated that Hertz was one of several companies that “face[d] ‘the greatest risk of bankruptcy’ in the next 12 months.” Hertz took the high road, suing Audit Integrity for saying such mean (and untruthful) things.
Well now Hertz has decided that it’s not worth the time and money. That very well may be, although were more inclined to think that they came to their senses that suing an independent research firm for their opinion wasn’t such a hot idea.

Crain’s New York:

Hertz’s aborted suit joins the pantheon of other unsuccessful legal efforts by companies to silence disagreeable analysts. Those that brought such actions include BankAtlantic Bancorp, retailer Overstock.com and drug-maker Biovail.

Overstock suing an analyst for saying not-so-nice things? There’s a shocker. BankAtlantic went after DB’s favorite woodland creature, Dick Bové (which is sort of embarrassing since he’s so cuddly), and Biovail’s lawsuit caused the SEC and DOJ to launch investigations which resulted in the company paying millions in fines and pleading guilty to criminal charges. Not exactly pristine company.
Audit Integrity — not being one to just bend over for some a company that once was endorsed by a certain acquitted murderer — called on the SEC to investigate Hertz for this dodgy lawsuit and now Hertz seems to have seen the light.
Press Release.pdf
Hertz puts brake on libel suit against analyst [Crain’s New York]
See also:
Hertz caves [Felix Salmon/Reuters]

Career Center

The Partner Track: Open Thread

Caleb Newquist
December 1, 2009

A friend of GC recently brought up the holy grail of public accounting: admission to the partnership. We were informed that in one Big 4 office in the west, the timeline for making partner had recently increased from 12 – 13 years to 15 – 16 years.

Maybe three additional years after a dozen is NBD but it might cause some to jump ship.

We would assume that this trend would be more likely in smaller markets but we’re opening this to you to discuss what you’re hearing about your office and firm.

Vote in our poll below about your partner aspirations and discuss further in the comments (and anything else partner-related for that matter). For the current partners kindly give your future partners some perspective on the journey. The good, the bad, whatever.

Online Surveys & Market Research

SHOCKER: Tax Reform Will Have to Wait

Caleb Newquist
December 1, 2009

If you’re like us, you’ve been anticipating the report on tax reform from the President’s Economic Recovery Advisory Board like teenage girls jonesing for New Moon.
Unfortunately, the report has been delayed and the Board will only be issuing “an almanac” of ideas at this point. The original deadline was for this Friday but you know how that goes.

Apparently you heeded the call put forth by the White House because they’re still reviewing all your brilliant ideas:
Tax Vox (our emphasis):

The White House statement says the board has not yet had time to review the hundreds of ideas it has received from the public. At the time same time, it asked for more suggestions. Yet, it is hard to believe that the panel is going to hear much new. After all, the ground of simplification and enforcement has been pretty well-plowed for years.

So keep those ideas coming people. Anything goes. Abolishment? Sure, they’ll think about it. Taxing the stupid? Best idea we’ve heard so far. If you’ve got suggestions, drop them here first then ring up the WH. They’re waiting.
White House Tax Reform Report Delayed Until Next Year [Tax Vox]
Also see:
President’s Tax Reform Task Force to Miss Dec. 4 Deadline to Issue Report [TaxProf Blog]
Tax Reform Panel: Something Someday [Tax Update Blog]

Uncategorized

Patrick Byrne Misses Golden Opportunity to Solicit Potential Auditors

Caleb Newquist
December 1, 2009

Just when we thought the hubbub around shareholder servant Patrick Byrne had gone on hiatus, we came across a post from Gary Weiss telling us that Patsy bailed on a CNN appearance for State of the Union with John King.
According to the website, “Patrick Byrne, Chairman & CEO of Overstock.com, looks at how consumer spending will fare this holiday season during a global recession.”

As Weiss notes:

Seriously, though, CNN’s bookers had no choice. What other CEO of any retail outlet bigger than a pushcart would be available during the busiest retailing weekend of the year? Byrne was scheduled to appear from studios in San Francisco, not Salt Lake City, where the corporate headquarters is located.
Here he was, while his company teetered on ruin, either flying into San Francisco for the chance to get his puss on national TV, or living it up on Telegraph Hill or wherever, far from his beleaguered and SEC-investigated company.

Apparently Byrne was late and dropped from the show. There is no transcript available for his appearance but if his smiling mug (hopefully posing on a Segway) made an appearance, by all means let us know.
In all likelihood, he was on the hunt for Friehling & Horowtiz’s San Fran office but an open plea on national television seems like a better way to find his company’s next auditor. Oh well. Next time!
“Economic Expert” Patrick Byrne Dumped by CNN [Gary Weiss]
More GC Coverage of Patrick Byrne/Grant Thornton saga:
Patrick Byrne: Noooo, Grant Thornton, You’re Lying
Grant Thornton: Patrick Byrne’s Pants Are on Fire

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.

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