The next big accounting flap? It may well be at Global Crossing.
The FBI and the SEC are reportedly both investigating the bookkeeping practices of the high-speed communications network operator, which filed for bankruptcy last month. As CFO.com reported on Feb.5, Global Crossing management said it is investigating a former finance executive’s charges of improper accounting. Those charges were apparently leveled in a letter written by the executive in August.
Global Crossing’s regular accountant is Andersen, which is already taking considerable heat for its role in the Enron Corp. bankruptcy — and for allegedly shredding critical documents related to its audits of that company.
So far, the FBI’s not saying anything about Global Crossing. A spokesman for the bureau told wire service reporters: “As a policy, we do not confirm or deny investigations.”
What is known is that Roy Olofson, a former vice president of finance at Global Crossing, raised questions about the company’s use of pro forma numbers and its revenue recognition policies. Olofson claims that it was improper for the company to have reported pro forma values for cash revenue and adjusted EBITDA because the numbers are not measures of cash receipts or earnings. The company also says Olofson asserts that the pro forma numbers were allegedly inflated by including amounts for which cash was not received or where there had been non-monetary exchanges of capacity.
Qualcomm CFO Defends Accounting
Qualcomm Inc., another company whose accounting practices are under attack, took the offensive Friday.
Management at the wireless technology specialist said its accounting practices meet industry guidelines. Qualcomm management also noted that concerns raised by the Center for Financial Research and Analysis Inc. (CFRA), a research firm, were taken out of context. “Qualcomm has the highest standards of corporate governance and accounting,” Anthony Thornley, CFO and chief operating, told Reuters. “What obviously has happened here is that (the research firm) has extracted data (that has been) taken out of context and not presented in context.”
According to Reuters, a summary of the CFRA report reads: “We found that the company has recorded revenue in exchange for non-cash consideration and that the company has accepted non-cash consideration for receivables removed from Qualcomm’s balance sheet.”
CFRA was founded by Dr. Howard Schilit, who’s done a substantial amount of research on troubled companies.
Lay to Take the Fifth on Tuesday
In an unsurprising announcement, former Enron chairman Kenneth Lay will invoke the Fifth Amendment when he appears before Congress this week, his spokeswoman told wire services Sunday night.
“Under the instruction of counsel, Mr. Lay will exercise his Fifth Amendment rights at the Tuesday hearing,” Kelly Kimberly told Reuters. She declined further comment.
Lay would become the fifth current or former top Enron executive to refuse to testify, including former CFO Andrew Fastow. In addition, David Duncan, Andersen’s lead Enron auditor, took the Fifth Amendment before Congress.
Lay was subpoenaed to appear Tuesday before the Senate Commerce Committee and on Thursday at a hearing of the House Financial Services subcommittee on capital markets. On Friday, Sen. Byron Dorgan had told reporters that he thought Lay may testify.
In a related story, it appears Lay sold his minority stake in the Houston Texans football team. Lay’s share was reportedly worth $7 million. The sale was part of a broader plan by Lay and his wife Linda to liquidate their assets to meet financial obligations, according to another report citing Kimberly. The Lays are also selling their houses in Aspen, Colo., Houston and Galveston, Tex. Many people only have one house.
Two Ricks Want Out
Meanwhile, two other Enron executives who refused to testify last week have asked for permission to leave the embattled company.
Chief Accounting Officer Richard Causey and Chief Risk Officer Richard Buy are still under contract to the energy trading firm. As a result, they actually must negotiate their way out, lawyer J.C. Nickens told news services.
Nickens said the pair would like to be “covered for the contractual obligations,” but didn’t say what those were.
It’s been a bad fortnight for the two Ricks. The scathing report issued by Enron Director William Powers that was released more than a week ago accused Causey and Buy of inadequately monitoring transactions between Enron and the company’s special purpose entities (SPEs).
The two also didn’t come off so well in testimony offered last week by former Enron attorney Jordan Mintz. In his appearance before lawmakers, Mintz testified that Causey and Buy warned him not to express his concerns to then-CEO Jeffrey Skilling about the SPEs. The reason? Former CFO Andrew Fastow, who ran the off-balance sheet ventures, was Skilling’s protégé. Said Mintz: “Both Ricks shared with me that Jeff was very fond of Andy [Fastow] — don’t go there.”
Andersen Loses One Hotel Client, Holds Onto Others
The Hard Rock Hotel and Casino in Las Vegas has fired Andersen as its accountant due to the controversy surrounding its audit of Enron.
“The Hard Rock Hotel and Casino is a highly principled and ethical organization,” CFO Jim Bowen said in a statement. “Our board of directors and management group were uncomfortable with retaining Arthur Andersen as our company’s auditors.”
Other major hotel and gaming clients appear to be sticking by the embattled auditor, however. According to published reports, these companies include: MGM Mirage, Harrah’s Entertainment Inc., Mandalay Resort Group, Marriott International Inc. and Hilton Hotels Corp.