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SEC: Diebold Financial Execs Would Step Over Their Own Mothers to Meet Earnings Forecasts

Posted on by Caleb Newquist

The Diebold CFO, controller and Director of Corporate Accounting had a fairly standard routine back from 2002 to 2007 – 1) get daily “flash reports” 2) look at BS estimates that analysts came up with 3) cook up some ideas for meeting those estimates 4) make up the numbers.

Pretty standard stuff, especially if you buy the idea that “legally cooking the books is a critical skill for attracting investors.”


The SEC presented the accounting hocus-pocus earlier today:

The SEC alleges that Diebold’s financial management received “flash reports” — sometimes on a daily basis — comparing the company’s actual earnings to analyst earnings forecasts. Diebold’s financial management prepared “opportunity lists” of ways to close the gap between the company’s actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold’s financial performance.
…
Among the fraudulent accounting practices used to inflate earnings and meet forecasts were:

• Improper use of “bill and hold” accounting.
• Recognition of revenue on a lease agreement subject to a side buy-back agreement.
• Manipulating reserves and accruals.
• Improperly delaying and capitalizing expenses.
• Writing up the value of used inventory.

Gotta give yourself some options, amiright? Can’t just simply rely on channel stuffing!

But in all seriousness, if you’re a top financial executive at a company and part of your daily routine is finding ways to increase profitability through accounting manipulation, at some point you’d have to think to yourself, “This is one shitty business we’re running.”

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If W. Anderson Bishop wanted to sound like a person who is refusing to adopt a different system of measurement because A) it was developed outside the United States B) doing things the easy way is dumb or C) he’s a crusty old fart, he has succeed admirably.

“We didn’t join the metric system when everybody else did,” says W. Anderson Bishop, [Hallador Energy Co.’s] chief financial officer. U.S. accounting rules are “the gold standard, and why would we want to lower our standards just to make the rest of the world happy?”

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Memo to CFOs: Layoffs, Frozen Salaries Don’t Always Save the Most Money

Layoffs, pay freezes, pay cuts. Pretty simple cost cutting solutions for CFOs who’ve got tight budgets. Unfortunately, the slash and burn tactics for personnel may have been better applied in another area – inventory.

A recent survey performed by Greenwich Associates of midsized and small company “financial decision-makers” found that, in particular, midsized companies ($10 million to $500 million in revenue) that reduced their inventory, on average, saved 30% more ($520k inventory vs. $400 layoffs).

While that’s great news, the unfortunate part is that only 17% of the companies survey bothered with that particular cost saving strategy while 47% of those survey used “staffing reductions.”


The survey also found that while 37% of used pay freezes to reduced costs with an averaged savings of $245,000. Crunching the numbers, that’s nearly 53% less savings than the inventory reduction savings.

Of course, not all companies have inventory in the dusty-stacks-of-pallets-in-a-warehouse sense. This is especially true of the professional services/financial services area where, unfortunately, the staff are sometimes considered to be inventory.

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Ex-Bank of America CFO Is in Cuomo’s Crosshairs

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

We briefly discussed work-inspired nightmares yesterday but as professionarobably don’t get a whole lot more unsettling than Joe L. Price’s.

Price, the former CFO at Bank of America, must be tossing and turning lately, what with the attorney general of New York naming him personally last week in a lawsuit over the bank’s handling of the ugly Merrill Lynch acquisition/investor-subsidized bailout/compensation party in late 2008.


Now, Price and former BofA CEO Ken Lewis face another unpleasant twist in what they must’ve thought originally was a slam dunk in an awkward but palatable settlement with the SEC over the Merrill Lynch deal (beware that slam-dunk feeling [see Tenet, George]).

Recall how Jed Rakoff, the irascible U.S. District Court judge presiding over the BofA/Merrill Lynch case, last year rejected a settlement between the SEC and BofA, saying that $33 million wasn’t nearly enough for the bank to make things right with investors who were kept in the dark about the unsavory downside – if that’s not too generous a word – for taking on Merrill Lynch’s baggage. And then on Monday Rakoff started asking mean questions about the second rendition, in which the SEC and BofA are saying, okay, fine, how does $150 million sound?

Going by some of the doubts Rakoff raised, he isn’t leaning toward letting the BofA executives ease on out of their difficult litigation-riddled winter into a springtime of sun-dappled redemption and new life. Easter, as it were, may yet be cold and wet (as may Passover, choose your festival). But don’t blame Rakoff because there are better scapegoats – the SEC, Andrew Cuomo, Punxatawny Phil …

Cuomo, that pesky AG in Albany, asserted in his allegations against Price et al. that BofA lawyers who had counseled against pulling the curtain aside on certain details about Merrill Lynch were essentially operating in the dark and that they were, therefore, misled. “Bank management failed to provide any of their lawyers with accurate information about the losses which the disclosure issue concerned,” the civil-suit complaint says, adding painful elaboration that alleges “false and incomplete information provided by Price.” (Ron Fink explains here).

This is not the kind of thing a CFO likes to read about himself or herself, which is why it may be best as a rule to come clean from the get-go. At the heart of the controversy is the assertion that BofA execs were simply not forthright about how they allowed Merrill Lynch brass to receive billions of dollars in bonus bucks in exchange for having lost billions of investor dollars.

In such a context, Radoff has implied, $33 million is chicken feed and $150 million is – I don’t know – cat food? The good judge apparently wants the bankers to throw some steak over the wall.

Also at issue, and fundamental to how BofA is managed going forward, are questions about how certain aspects of corporate governance are handled, perhaps especially about how compensation is set. Rakoff suggested that there might be better ways to come up with a reasonable pay scheme than leaving it to BofA’s compensation committee to pick its compensation consultant of choice.

A big clue about how he might rule on this is in his observation on Monday as to the “incredibly bloated compensation of too many executives in too many American companies.”