When accounting goes unaccounted for
Because you’ve caused a ruckus.
It’s an especially nice touch that the Shred-it truck is outside. Coincidence?
UPDATE: Said Benz has been towed and NYPD has re-opened Park Ave. Apparently it “appeared to be weighed down in an unusual way,” which leads to believe that the Shred-it truck was completely packed and some partner had pull around front to help get some sensitive docs out of 345 Park.
We briefly mentioned this case on Monday but since everyone seems to have checked out mid-week, we’re sure you won’t mind.
Way back in the dawn of the Clinton Administration, some financial reporting chicanery went down at Papel Giftware, Inc. so that Cast Art Industries of Corona, California would run into the company’s outstretched arms. More specifically, chicanery that consisted of ” ‘systemic, organized, improper accounting practices at Papel.’ ” Cast Art failed in 2003 which made everyone sad/mad.
KPMG was on watch as this all went down and a jury found the firm negligent in 2008 under the Accountant Liability Act.
The bitch of it is, the KPMG partner was thisclose to pulling out of the engagement, “[A] July 2000 letter by KPMG partner John Quinn that said Papel Chief Financial Officer Rick Wasserman gave an ‘unfair and misleading characterization of the accounting and auditing issues.’ Quinn said he was ‘very much inclined’ to recommend ending work with Papel after that year’s audit, according to the opinion.”
That ‘very much inclined’ didn’t result in “we withdraw from the engagement.”
However, since the KPMG is a professional services firm with the necessary means and a reputation to protect (according to some, anyway) they appealed the ruling and on August 26th a three-judge panel of the New Jersey Appellate Division still said, “yep, it’s accounting malpractice.”
This was a thrilling result for plaintiffs who are looking to squeeze more damages out of the firm:
“This is a huge win and no matter how KPMG wants to spin it, it’s a devastating loss for KPMG,” plaintiffs’ attorney Michael Avenatti said in an interview. “KPMG’s appeal of this case may go down as Exhibit A of ‘Be careful of what you wish for.’ Now, we have the ability to go collect potentially $10 million to $20 million more in additional damages.”
Right. The spin.
A KPMG spokesman, Daniel Ginsburg, said the firm is “considering our available options” after the ruling.
“We are pleased that the court affirmed dismissal of the plaintiff’s fraud claim against us, and also reversed the jury’s verdict by ordering a new trial on the issue of damages,” Ginsburg said in an e-mail. “We are disappointed, however, with the court’s ruling on legal issues regarding the plaintiff’s negligence claim.”
Actually, not much spin there. Just one of those kiss your sister/brother moments.
KPMG Committed Malpractice Tied to Cast Art Merger, Appeals Court Rules [Bloomberg]
The Big 4 managed to squeeze onto a a couple different recent lists for their consulting efforts including Consulting Magazine’s 2010 Best Firms to Work For and Vault’s 2011 Consulting 50.
We’ll roll out the particulars of Consulting Mag’s lists first and give you Vault’s results later today.
Consulting Mag has several different lists but we’ll stick to the most relevant for the Big 4 . We’ll start off with the overall ranking:
1. Bain & Company
2. The Boston Consulting Group
3. North Highland
4. Point B
5. McKinsey & Company
6. Deloitte Consulting
7. Booz Allen Hamilton
8. PricewaterhouseCoopers
9. Accenture
10. Slalom Consulting
11. Milliman
12. Booz & Company
13. A.T. Kearney
14. Capco
15. PRTM
So the Big 4 really makes two appearances here with Deloitte and PwC. You could throw Accenture in there for old time’s sake. Back when we covered Barry Salzberg’s little merger chat in the Journal, two names that were thrown at him were Booz and A.T. Kearney. While this list is certainly no indication, you’ll see that based on the rankings, Deloitte ranks above both those firms despite commenters suggestion that Booz and A.T. are superior brands.
The list dominated by the Big 4 was the Business Advisory Services:
1. PricewaterhouseCoopers
2. Alvarez & Marsal
3. Ernst & Young
4. KPMG
5. FTI
You don’t see Deloitte and Accenture on this list since they fall on the “Multi-Service” list at #1 and #2 respectively and Capgemini (purchased E&Y Consulting in 2000) is numero uno on the Information Technology list.
Deloitte Consulting and PwC get dropped on a few more lists that include: Career Development, Work/Life Balance and Culture while KPMG and E&Y are nowhere to be found. A list of “Best Places to Start a Career” listed Deloitte at #3 and KPMG at #6 with PwC and E&Y MIA.
Naturally there is room for bellyaching and there are vaguely familiar frustrations in the feedback portion:
Leadership
You have to manage your career with little help from management. Here’s the rope, climb the mountain or hang yourself…Work/Life Balance
The concept of a work life balance is talked about, but only as an afterthought.Compensation/Benefits Satisfaction
Your work will double, but salary may not.
Those aren’t specific to any one firm but something tells us you could find someone in any of the Big 4 consulting/advisory groups griping about these issues. OH! And as far as scoring for morale goes, the Big 4 are shutout of the top ten.
So a bit of a mixed bag on this particular list but you’ll likely see a rash of press releases in the coming days and weeks along with emails and whatnot from your leadership.
So feel free to debunk the latest seemingly arbitrary rankings. We certainly expect the consulting purists of the bunch to be disgusted with the Big 4 sullying these particular grounds.
The Best Firms to Work For, 2010 [Consulting Magazine]
PricewaterhouseCoopers Named Among the Top 10 Best Firms to Work For by Consulting Magazine [PR Newswire]
And you know he’s not messin’ because that’s what he told Charlie Gasparino and God knows you best not lie to the Fox Business Network’s ace reporter. Sure Bové didn’t actually say “KPMG” (hell, he’s probably never heard the name) but he’s giving credit to auditors which is about as unheard of as Tiger Woods using Trojans with hookers.
Bové may have mentioned some other things about Mike Mayo, Citi, Deferred Tax Assets so on and so forth but we’re sure you’re not worried about that.
Btw, if you need to get caught up on just who Dick Bové is, go here. Courtesy of FBN:
On Citi’s apparent cold shoulder towards analyst Mike Mayo:
“It’s totally wrong. Mike Mayo is a brilliant analyst. He’s been in this business for a long period of time and does a superb job of following the industry. To say he can’t come in and speak to the company in my view is absolutely and totally incorrect.”On whether Mike Mayo’s accusations against Citigroup’s risk management lapses are accurate:
“Absolutely. In September of 2008, Citigroup was effectively bankrupt. The reason why it was bankrupt was the reason that Mike cites. It was that the risk management procedures had completely broken down and it was not effectively managing its portfolio. Mike is right on that comment.”On why we should believe Citi on its accounting reports:
“We don’t have to take Citigroup’s answer to Mike Mayo. We can take a look at the fact that this company is audited by an exceptional group of auditors. They are regulated by a large number of bank regulators…and they actually are being audited for their tax issues right now by the IRS. All three of these groups agree with the public statements of Citigroup concerning DTAs.”“What is the basis for saying that these three groups which have seen the numbers don’t know what they are talking about, whereas people that have not seen the numbers, do know what they are talking about.”
On whether Citi has been given a clean bill of health by the SEC, IRS and the Fed:
“We do have an audited financial statement which is not questioning the DTAs. We do have bank regulators who could have memorandums of understating with Citigroup if they believed there was a problem. Citi is estimated to earn by Mike Mayo $9 billion this year. Next year he estimates the company to show a 33 percent increase in earnings to $12 billion. If there is a DTA problem, why is there a belief that the company can jump its earnings by 33 percent from 2010 to 2011?”
We’ve been assured by the wonderful people at Fox that we will have video of this momentous (and perhaps unprecedented) occasion just as soon as it’s available.
UPDATE: AS WE SUSPECTED! Not only was the initial report mis-transcribed, check out Dick’s reaction to Gasparino’s question, “It’s KPMG I believe, correct?” around the 2:37 mark:
Pretty obvious that the dude has never heard of KPMG in his life.
SEC sues ex-Dell accountants over fraud [Reuters]
“The U.S. Securities and Exchanges Commission on Friday sued two former top accountants of Dell Inc for manipulating financial statements to meet Wall Street earnings targets between 2001 to 2003.
The regulator said in its suit, filed at the U.S. District Court of the District of Columbia, that former Chief Accounting Officer Robert Davis, and former Assistant Controller Randall Imhoff had maintained a number of ‘cookie jar’ reserves — an improper accounting method in a bid to cover shortfalls in Dell’s operating results.
The SEC said the improper accounting led to Dell having to restate all its financial statements from 20 g>Mosque big owes 224G tax [NYP]
“Sharif El-Gamal, the leading organizer behind the mosque and community center near Ground Zero, owes $224,270.77 in back property tax on the site, city records show.
El-Gamal’s company, 45 Park Place Partners, failed to pay its half-yearly bills in January and July, according to the city Finance Department.
The delinquency is a possible violation of El-Gamal’s lease with Con Edison, which owns half of the proposed building site on Park Place. El-Gamal owns the other half but must pay taxes on the entire parcel.”
States See Pickup in Tax Revenue [WSJ]
“Overall tax revenue increased 2.2% in 47 states that have reported their receipts for the three months ended June 30, compared with the same period a year ago, according to a report to be released Monday by the Nelson A. Rockefeller Institute of Government at the State University of New York.
This marks the second quarter in a row of recovering tax collections—and follows five quarters of declines in revenue that hammered local-government budgets. The latest figures are still a mixed bag: Some states continue to see declining revenue, but those were offset by states that saw increases.”
KPMG Accounting Malpractice Verdict Affirmed but $38 Million Damage Award Vacated [Law.com]
Is this what you call a lose/win?
Relax! Iowa Is Funding Hollywood Again [Tax Update Blog]
That is a relief. But Joe Kristan reminds us how things went the first time around, “The film program collapsed in scandal last fall, and the film office director and two filmmakers face criminal charges. Iowa is on the hook for $200 million for credits already committed — about $66 per Iowan. “
An S.B.A. Loan Program Goes Quietly [You’re the Boss/NYT]
The Small Business Administration’s America’s Recovery Capital Loan program (“ARC”) is being shut down just after a year in operation. At the outset, the 10,000 that were going to made available was thought to be too small. As of August 20th, the program had made less than 8,300 loans and it will be lucky if it reaches 9,000 by the time it expires next month.
Starting a new school year [Accounting Professor]
Fans of Professor David Albrecht has started a new blog; this is the first post.
Obama’s Tax Reform Panel: A Missed Opportunity [TaxVox]
“The paper, approved by the panel this afternoon, is filled with lots of useful information about our flawed tax system but leads nowhere. There are no recommendations. No revenue estimates. And no ownership by President Obama, even though he picked the panel’s members and staffed it with White House aides.
As a result, this report is a huge missed opportunity. Obama might have used this exercise to jump-start a debate over fundamental tax reform. Instead, the report does nothing to fill the policy vacuum that is being filled by an argument over what to do about the decade-old Bush tax cuts.”
A win is a win and the U.S. Second Circuit Court of Appeals handed one to John Larson, one of three defendants sentenced last year for selling illegal tax shelters. The Court “found Larson’s [$6 million] fine too high, citing a lack of jury findings to support a fine above $3 million. It returned that part of the case to the lower court to recalculate any fine.”
That’s more or less where the good news ends. The court did uphold the convictions of Larson and his two co-defendants – ex-KPMG Partner Robert Pfaff and ex-Brown & Wood partner Raymond Ruble. Larson was sentenced to a 10 year prison term last year. Pfaff received 8 years and Ruble 6-1/2 years.
Appeals court upholds KPMG tax shelter convictions [Reuters]
The good ole US of A is always here to help its friends in times of need (whether it’s right or wrong is another matter completely). This reverberates all the way down to the multi-national companies that enjoy expansive networks in the U.S.
Getting to the point: from the mailbag:
I (along with EVERY associate and senior associate in the US) got this email this morning from some idiot staff in KPMG Ireland asking us to vote for him to win a vacation courtesy of Coors Light. I’ve never heard of this guy but apparently thinks he knows all of us well enough to ask us to vote for his stupid beer vacation.
I kid you not — he actually looked up every associate and sr associate distribution list for every region/office and practice. He’s listed as a “Trainee” in the global address book under KPMG Ireland FS Audit (whatever that means). This idiot needs to be taught some email common sense…
But when matters of utmost importance – such as a winning a ski getaway to British Columbia – there is only one place to turn…The United States:
Hey everybody!
Me and 2 friends have entered a competition to win a free ski trip to Whistler, Canada. It just depends on who gets the most votes in a week. If you could follow the link and vote for us I’d really appreciate it.
http://www.coorslight.ie/destination/profile/cde76g7p
It only takes about 10 seconds and no registration / email needed. You just enter your D.O.B to enter the main site (or any DOB that makes you over 18) then just hit the ‘vote for us’ tab on our profile –
Ri-Skii Business. If you can forward this to some friends or contacts in your different offices it could really help to put us out in front!Thanks!
Here’s the plea from the Ri-Skii Business page:
Idiot? Or sheer genius? We’ll let you debate that one. In any case, help the dudes out and go vote. They’re just looking for the next adrenaline rush.
Fox Business Network’s ace news-breaker Charlie Gasparino reports that Citigroup’s management team, including CEO Vikram Pandit and CFO John Gerspach will not meet with CLSA banking analyst Mike Mayo since he’s been telling investors that the big C should be writing down their $50 billion in deferred tax assets.
Carlito reports that Mayo states that this refusal to write down the DTAs amounts to “cooking the books by inflating its earnings through an accounting gimmick.”
Simple question from Mayo via CG, “I’d like to know why all my competitors get meetings with Pandit and the key people there and I don’t.” It’s not like the guy is one of the top banking analysts in the entire world. It’s not like Citigroup has a solid track record of transparent financial reporting. Or did everyone forget that C has the U.S. Treasury as its backstop?
The KPMG audit team can weigh in on this at any time. Or just email us the details.
GM’s balance sheet draws praise ahead of IPO [MarketWatch]
“Peter Bible, partner-in-charge at accounting firm EisnerAmper LLP, said General Motors is now carrying a much stronger balance sheet than its predecessor, based on the company’s initial public offering filed late Wednesday. ‘Their debt-to-equity ratio looks handsome,’ Bible said in an interview. ‘This thing has gotten restructured quite a bit. GM’s health care liabilities have fallen significantly. As I look at the balance sheet, it is much healthier.’ “
Move to converge just exported crisis [Re: The Auditors]
KPMG has put two major lawsuits behind them – Countrywide and New Century. One major difference between these two cases was that New Century had a bankruptcy examiner’s report while Countrywide did not.
Judge Denies Online Religious Group’s Bid for Church Status [WSJ]
A virtual “church” gets denied the whole “church” thing.
For the rich, ’tis better to give than wait [Reuters]
“With U.S. taxes almost guaranteed to rise next year, the rich have a rare opportunity to distribute some wealth and preserve their fortunes.
A weak economy has led to razor-thin interest rates and beaten-down valuations, which make giving less costly for and potentially more rewarding to heirs. Moreover, the U.S. government is widely expected to rein in a popular tax-avoidance scheme.
‘This is a golden era for shifting estates and giving assets away,’ said Bill Fleming, a financial planner for PricewaterhouseCoopers in Hartford, Connecticut. ‘If you have an estate plan, keep going: Uncle Sam soon will be back in your pocket.’ “
Wager 101: Students Bet on Their Grades [WSJ]
“The website attracted wagers by 600 students from two colleges last year, said Mr. Gelbart and co-founder Steven Wolf, graduates of Queens College. This month, the site expanded to let students on 36 campuses—including Harvard, Stanford and Brigham Young University—place bets. More than 1,000 new bettors have signed on.
Lisa Lapin, a Stanford University spokeswoman, said school officials were ‘appalled’ when they learned Stanford students could place bets on their grades, adding, ‘the concept of betting on academic performance is contrary to academic development.’
Lance Miller, a finance major at the University of Pennsylvania, says the criticism misses the mark. Mr. Miller, with a GPA of 3.6, won about $80 on two $40 bets that he would earn A’s in business courses.
‘We’re acing classes to make money—isn’t that what they call a win-win?’ said Mr. Miller, 20.”
Facebook’s Places Feature Lets Users Share Their Whereabouts With Friends [Bloomberg]
“Services that help Web users share their whereabouts and find nearby friends could generate as much as $4.1 billion in annual ad sales by 2015, according to Borrell Associates. The features can help marketers more easily target customers — say, by reaching shoppers when they’re close to making a purchase.”
Goldman CFO Viniar Gets $4.5 Million Options Windfall [Dow Jones]
“Goldman Sachs Group (GS) Chief Financial Officer David Viniar received $4.5 million by exercising more than 67,000 options as part of the investment bank’s disclosure Friday with the Securities and Exchange Commission.
According to the filing, Viniar was among six top executives who have converted s ing stock options into a windfall of $24 million, cashing in on benefits they received years before the government’s 2008 rescue of the nation’s biggest financial firms.”
Tweedie faces greatest challenge in last days [FT]
“Sir David Tweedie says his staff are concerned about what he might do in his last months as head of the International Accounting Standards Board, the powerful global rule setter that he has chaired for a decade.
‘I think people are quite worried about how I might do in my last six months here, with all my vendettas and all these grudges I’ve been storing up . . . I think they are worried that I might let them go,’ he says with a laugh.”
Rulemakers Plan Global Overhaul of Lease Accounting [Reuters]
“U.S. and international accounting rule makers are planning to propose an overhaul of lease accounting as soon as Tuesday, in a move expected to affect some $1.2 trillion in leased assets.
Traditionally, accounting rules have given companies a lot of leeway in how they record leases for assets ranging from store locations and restaurant equipment to airplanes and machinery. As a result, only certain types of leases appear on the balance sheet, while a majority of a company’s leases can often be kept off the balance sheet and hidden from an investors’ view.
But the Financial Accounting Standards Board, which sets U.S. accounting rules, and the London-based International Accounting Standards Board, which writes accounting rules for more than 100 countries, will aim to change all that this week by proposing to bring many of these assets onto corporate balance sheets.
‘It’s something that needs to be done,’ said John Hepp, a partner in accounting firm Grant Thornton’s professional standards group. ‘Lease accounting is broken.’ “
Hunt for IASB head hits hurdle [FT]
“The search for a successor to Sir David Tweedie, chairman of the International Accounting Standards Board, which sets accounting rules for most of the world outside the US, has hit difficulty in the face of opposition in Europe to how the process has been conducted.
Sir David has presided over deteriorating relations since the financial crisis, with some senior European officials raising concerns about the transparency of his decision-making amid criticism that he has prioritised an effort to get the US to adopt international rules at the expense of European interests.”
PricewaterhouseCoopers taps Kevin Kelly to head Birmingham office [Birmingham News]
Kevin Kelly is new the managing partner for PwC’s Birmingham office. He replaces David Pickett who is the new OMP in Nashville.
UCF accounting student killed [Central Florida Future]
“Orange County Sheriff’s officials have released the names of the two people who died Saturday in an apparent murder-suicide, after a woman was found dead in an apartment about five miles south of UCF, and a man was found dead at a local shooting range.
Jennifer Lynn Roqueta, an accounting major at UCF who had just turned 21 in May and a server at Buffalo Wild Wings in Waterford Lakes, was identified as the victim on Sunday.
The suspect, who was identified as Ryan Ray Scurlock, 24, was found at the Shooting Gallery gun range located at 2911 39th St. in Orlando.
The investigation stems from Saturday’s incident in which the OCSO received several calls from Scurlock’s acquaintances requesting they check on his well-being because they had received alarming text messages from him that indicated he was distraught.”
Former Fed official joins KPMG [WaPo]
Jon Greenlee is joining the Tyson’s Corner office as a managing director in KPMG’s financial services regulatory practice. He previously worked as an associate director of risk management in the Fed’s division of banking supervision and regulation.
Satyam auditors to face Sebi probe [Hindustan Times]
“Accounting firm PricewaterhouseCoopers (PwC) will have to face an inquiry by the Securities and Exchange Board of India (Sebi). The Bombay High Court on Friday dismissed PwC’s petition challenging Sebi’s show-cause notice dated June 30, 2009 seeking to prohibit PWC from auditing accounts of listed companies.”
That’s not a tax bill, THIS is a tax bill: Crocodile Dundee star Paul Hogan hit with £8m in charges [Daily Mail]
“But in a American TV interview last year, Hogan, 70, vowed that the taxman would not get a penny more of his money and added: ‘Come and get me, you miserable b******s.’ “
Eide Bailly merges with R T Higgins [Denver Business Journal]
Top 25 firm Eide Bailly’s merger with RT Higgins brings the the firm’s total staff to over 1,200 in nine states.
A member of the Phil Mickelson fan club is a little peeved with a recent decision (or not so much, you’ll have to tell us) regarding travel time:
I am in an office that covers a significant region that includes TN, KY, GA, MS and AL. Previously, it was office policy (and in most cases area policy) that at a minimum half of the travel time to and from client was considered chargeable. Well, management in its infinite wisdom has decided that will no longer be the case. Therefore, those 40, 50 or 60 hour weeks are now 50, 60, or 70 hour weeks when the travel time is excluded for management’s purposes but included in the “real world” (which management has clearly lost touch with).
Why the change? Our source has a theory:
In this year of increased emphasis on internal profitability (which is a joke for a fixed fee revenue generating business), management needed some mechanism to make up for all the hours that are going to be wasted messing around with this “awesome” tool (which malfunctions daily) [Ed. note: he/she is referring to the new paperless audit tool]. This is also in response to the area management’s inability to win clients. So, instead of [leadership] making the tough decisions and forcing those responsible for the poor results, loss of clients, and improper planning to bear the weight of the lack of profitability (and reduce their income), it totally makes sense to squeeze the staff even further. I guess the philosophy may go something like this: “well, they are already pissed because we don’t pay them properly, we are forcing them to use this eAudit tool that doesn’t work and isn’t ready for deployment, and we are making them work ridiculous hours because we fired too many people (keep in mind the exodus is just beginning so this is just going to get worse), so we might as well just making even madder by telling them that those hours they used to spend in the air or car in the service of KPMG don’t really matter for crap either”.
Sound about right, Klynveldians? Discuss, debunk and whathaveyou.
[/caption]
As we briefly mentioned this morning, KPMG Poster Boy Phil Mickelson is only about 90% for this week’s PGA Championship because he’s been suffering from psoriatic arthritis for the last two months.
While this may have hampered his game in the last couple of tournaments, there’s been a far more serious development. Phil has gone vegetarian.
We can only imagine what kind of frenzy this development this has sent the KPMG Phil-handlers into. There’s no doubt in our minds that Omaha Steaks are the go to “FTW Phil!” gift that he receives before after every tournament he wins. But now what? This veggie thing is serious.
“I know this is crazy,” he said Tuesday. “For the last two months now, I’ve been a vegetarian. Can you believe that?”
This puts Mickelson in an awkward position. Not only is he a connoisseur of all things beef, but he is part of an ownership group that has purchased the rights for Five Guys burger and fries franchises in Orange County, Calif.
“The real test is driving by a Five Guys and not stopping,” he said. “I don’t know if I can do that yet, but we’ll see.”
Since it’s only been a couple of months, we doubt that Phil has gotten over the meat sweats yet but if he happens to pull out a victory in this last major, you can expect the big guy will be dumping those Five Guys franchises ASAP.
Mickelson a Strait shooter [Milwaukee Journal Sentinel]