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Ex-NMFA Controller Admits That He Was ‘Probably Negligent’ to Submit a Fake Audit Report But It’s Okay Because a Real Audit Will Confirm That Everything Is A-okay
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Last month we broke the news of LarsonAllen and Clifton Gunderson feeling each other out about a possible merger. At the time, Clifton Gunderson CEO Krista McMasters told Going Concern that the two firms were simply in “exploratory discussions” and it wasn’t a story. Sorta like when two celebrities are seen vacationing on a yacht together. Everyone just assumes they’re banging, will eventually be a couple and the new celeb couple name game begins instantly. However, it turns out that they are “just friends” who are “enjoying time together.” For this particular round, our sources told us that LA and CG were “50/50,” that LarsonAllen had approved the merger and that the new merged firm would be known as CliftonLarsonAllen. Again, at the time of our discussion, Ms. McMasters denied that anything had been decided.
Well, today, it appears that the “exploring” went pretty well and the name game was right on the money:
Clifton Gunderson and LarsonAllen have confirmed they plan to merge in the New Year into a combined firm known as CliftonLarsonAllen. The two firms said Tuesday they would combine, effective January 2, to create one of the top 10 accounting firms in the U.S., with combined revenues of between $550 million and $560 million.
Not to nitpick but by Accounting Today’s count, the combined revenues would be closer to $470 million. I haven’t punched a 10-key in a number of years but that’s the number I got. I guess sometimes you just gotta take their word, amiright? ANYWAY, since these two firms were simply in “exploratory discussions” it’s pretty impressive that they were able to slap this deal together so quickly isn’t it?
The two firms began discussions in the spring and made rapid progress. “As often happens in our profession, firms get together to talk about what it might look like if they ever were to come together and how they might help each other,” said LarsonAllen CEO Gordy Viere.
Gosh, I must have a warped idea of what “exploratory” means. And by “spring” I assume that’s the period between late March and late June? And by rapid progress, does that mean, in three months they were still in “exploratory discussions” and nowhere near a deal, only to fall into each other’s arms less than a month later? I need help with this.
It’s been quite awhile since we heard a good merger rumor and this past week we finally heard one that doesn’t involve Moss Adams or Grant Thornton.
Rumor has it Larson Allen and Clifton Gunderson are merging. Vote approved by Larsen Allen, vote pending by CG.
We checked with another source, someone familiar with dealings within the accounting industry, who confirmed that the two firms are talking. According to this person, the combination would make sense as both LA and CG are “sleepy” firms that don’t perform public company audits and have been making small acquisitions here and there. Also it would strengthen CG in areas like Virginia/Maryland where they are rumored to be lowballing engagements and Larson in places like Illinois, Indiana, and Wisconsin where CG has a big presence. This person also said that the deal was “probably 50/50 right now” with the rumored name of the new firm being “CliftonLarsonAllen”.
Clifton Gunderson CEO Krista McMasters told Going Concern that this is “not a story” right now because the firms are simply in “exploratory discussions” and there has not been a vote by the CG partners. Ms. McMasters also denied that there had been any decision on the name of the combined firm, reiterating that they are simply feeling each other out.
Even though it doesn’t sound like things are hot and heavy yet, we rammed a few details together from Accounting Today’s most recent Top 100 Firms list to see what the CliftonLarsonAllen firm would look like:
• A combined $470 million in revenues. That would be good enough to be the 10th largest firm in the U.S.
• 60 offices (probably some consolidation) in 24 states and The District of Columbia.
• Over 300 partners and 3,000 total employees.
A spokesman at LarsonAllen declined to comment but was trying to get someone in the know to call us back. So far, we haven’t heard anything. If you’re in the loop and have more details to share, email us.
Meanwhile, back in the world of where people actually do work – a friend of GC sent us the following:
I heard an amazing price war story from a very reputable source. Thought you would enjoy.
A KPMG audit client in the Virginia Beach area went out to bid. KPMG bid approx $85K, a regional firm bid mid-60K, another firm approximately 40K, and Clifton Gunderson undercut everyone by bidding $19K on the audit. 19K! How in the hell is that possible? This is a prime example of what is happening out there.
Don’t know if this is SOP at Clifton but that price has to make for some horrendous realization or it’s simply staffed by an entry-level associate and a partner. Other theories on how they plan to pull this off without completely losing their shirts are welcome.
Accounting News Roundup: UBS Deal Hits a Snag; More Clifton Gunderson M&A Activity; Governance Prep Is Big Hurdle for Companies Going Public | 06.08.10
Primaries to Watch From Coast to Coast [WSJ]
There are eleven states that have primaries going on out there today so get out there and pull the lever for someone.
Swiss-US deal on UBS delayed by lower house snub [Reuters]
UBS still owes the IRS 4,450 names of clients as part of the deal that the U.S. reached with Switzerland re: tax evaders with UBS accounts. Small problem – the deal is hung up in Switzerland’s parliament, after the lower house of Switzerland’s parliament rejected it.
Why is this political jockeying even happening? Since the name naming is a big no-no in Swiss secrecy law, the parliamentary approval became necessary after a Swiss court blocked the transfer of the information in January. The names for retracted smackdown has an August deadline but if it is not met, the Swiss risk the the launch of a new tax case against UBS by the United States.
Clifton Gunderson Merges With St. Louis’ Humes & Barrington [Clifton Gunderson]
Clifton Gunderson has obtained St. Louis-based Humes & Barrington, in an deal effective June 1. The H&B staff of 53 will join the 7 partners in adding to the 1,900 professionals at CG. This acquisition was in addition to the purchase of Stockton Bates that we mentioned last week as well as the purchase of BKD’s Merrillville, IL location.
Corporate Governance is Top Challenge for Companies Considering an IPO, KPMG Survey Series Finds [KPMG PR]
Improving governance is biggest challenge as 64% of the companies surveyed looking to make a public offering listed it as a top challenge along with developing a robust business plan (40%) and preparation of financial track record (36%).
Jefferson Wells aligns with Baker Tilly Mexico [Milwaukee Business Journal]
Milwaukee-based Jefferson Wells has aligned with Baker Tilly Mexico to expand its operations in that country and the the Central America region. This marks the fifth expansion for JW in twelve months and is the first into Mexico, Central America and the Caribbean.
Accounting News Roundup: Tipsters Expose Fraud More Often Than Most Controls; What if the PCAOB Is Unconstitutional?; BDO Could Question Forensic Accountant’s Credibility | 06.01.10
Something Wicked This Way Comes [CFO]
A recent Association of Certified Fraud Examiners (ACFE) study discovered that “[o]f the top eight controls ranked by effectiveness, only one — surprise audits, which cut fraud losses by 51% — is part of the traditional accounting-based control structure. Financial-statement review, internal audits, and Sarbanes-Oxley-mandated certifications by CEOs and CFOs all ranked below the nonaccounting controls in terms of effectiveness in preventing fraud.”
Controls have no match for good old human conscience, “tips expose fraud three times as often as do management reviews, internal audits, or account reconciliations.”
The problem however, is that employees may not be getting the training about how to report fraud if they know it’s happening, “an unsupportive corporate culture and poor employee training leave potential whistle-blowers unsure of whom to talk to.” Plus the baddies are doing their best to dissuade them, as Sam Antar told CFO, “[They] don’t go down without a fight, they don’t fight fairly, and they are going to intimidate whistle-blowers — that’s the nature of their game.”
Accounting for Crisis [Portfolio.com]
Gary Weiss writes over at Portfolio about the impending decision in Free Enterprise Fund v. PCAOB and he’s not impressed with the FEF’s argument, “claiming that the board would give our Founding Fathers heart attacks because its members are appointed by the Securities and Exchange Commission and not the president and can’t be removed except for cause.”
That despite the PCAOB’s lack of fireworks in its daily activities, “The PCAOB has not exactly rocked our world—and obviously its existence did nothing to keep Lehman from its Repo 105 book-cooking scheme. But getting rid of it, particularly on specious Constitutional grounds, would be a blow to the cause of more accurate financial statements.”
The odds say that the SCOTUS will affirm the lower court’s decision but just in case, Gary agrees with Interim PCAOB Chairman Dan Goelzer that Congress needs to act fast if the Court surprises us and reverses the decision.
Clifton Gunderson buys Stockton Bates [Philadelphia Business Journal]
Philadelphia-based Stockton Bates will join Clifton Gunderson’s 1,900 employees and 300 partners effective today. Stockton has 32 employees between three offices in Philadelphia, Lancaster, PA and Haddonfield, NJ.
BDO Seidman fights claims brought by fraudster Lew Freeman [South Florida Business Journal]
Convicted forensic accountant Lewis Freeman testified in the case of ES Bankest and BDO. So it’s not outside the realm of possibility that Freeman’s conviction could call his credibility as a witness into question as well as the Bankest bankruptcy proceedings, where Freeman acted as the court-appointed receiver.