Treasurer at El Paso Shot Dead

Longtime energy company treasurer found dead at home. Elsewhere: Microsoft settles with SEC, employees No. 1 security threat, and just how long does the average close take?

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Another top Houston energy executive has apparently taken his life.

Charles Dana Rice, 47, senior vice president and treasurer of El Paso Corp., was found shot dead Sunday in his home, according to published reports. It appears to have been a suicide.

“The employees of El Paso Corp. are deeply saddened by yesterday’s tragic news,” said El Paso management in a statement.

The share price of the regional pipeline company closed down more than 14 percent on Monday, at $21.95, after tumbling as low as $19.30 during the day.

The stock prices of a number of energy companies have been rocked in recent weeks amid a widening investigation into so-called round trip trades—sham transactions designed to boost revenues and share prices.

So far, Dynegy Inc., Reliant Resources Inc., and CMS Energy have admitted to engaging in these kinds of trades.

Last week, Dynegy chairman Chuck Watson resigned amid controversy over round-trip trades with CMS. The CEO at CMS quit last week as well—apparently for the same reason.

Management at CMS has also reportedly acknowledged the company conducted more than $4 billion in round-trip trades in an 18-month period.

Reliant management, which provides electricity and energy services to wholesale and retail customers, conceded that an internal review found that the company had engaged in round-trip trades. A few weeks ago, Reliant management also canceled its planned $500 million private placement. Company executives said they scotched the debt deal when they realized that Reliant had probably engaged in the illegal transactions, which boosted revenues by 10 percent since 1999.

On Friday, El Paso said in a statement that it responded to the Federal Energy Regulatory Commission’s most recent request for statements of admission or denial with respect to so-called wash or round trip or sell/buyback transactions in the power-trading sector. “The affidavit provided today by El Paso confirms that the company did not engage in any such practices,” said El Paso management in the statement.

Last week, management at El Paso announced a restructuring that would result in the elimination of 300 jobs in its trading group. The reorganization will also halve the company’s investment in trading activities to $1 billion and divide that group into three separate divisions. It also said it would make its financial results easier to understand.

Reportedly, treasurer Rice had been suffering from heart and kidney problems. A neighbor told the Associated Press Rice was undergoing dialysis and that he was on a list to receive a kidney transplant.

Rice joined El Paso Natural Gas in 1977 as an analyst in one of the company’s finance divisions. He became director of the accounting department in 1996. In 1998, he became vice president and treasurer of El Paso Energy, El Paso’s former corporate name.

Back in January, former Enron Corp. vice chairman J. Clifford Baxter shot himself in the head while parked in his car.

SEC Settles with Microsoft

Microsoft Corp. agreed to cease and desist from committing accounting violations and other violations of federal securities laws under a settlement with the Securities and Exchange Commission.

“The Commission found that Microsoft had maintained seven reserve accounts in a manner that did not comply with Generally Accepted Accounting Principles (GAAP),” according to the SEC, in a statement. “More particularly, the Commission found that these reserves did not comply with GAAP because, to a material extent, they did not have adequately substantiated bases.”

As a result, Microsoft misstated its income by material amounts in filings made between July 1, 1994, and June 30, 1998, according to the settlement. The commission also found that Microsoft did not properly document the bases for these accounts and failed to maintain proper internal controls, as required by the federal securities laws.

“This case emphasizes that the commission will act against a public company that issues financial statements with material inaccuracies, even in the absence of fraud charges,” said Stephen Cutler, director of the commission’s Division of Enforcement.

“Public companies must ensure that their accounting is substantiated in the first instance by factual bases and well-reasoned analyses and conclusions,” he added. “In order to do so, companies must properly document the bases for their reserves and other accounting entries, so that they and their auditors can verify that the accounting is proper; and they must maintain appropriate internal controls, so that this verification will occur in the normal course of business.”

The commission’s Order Instituting Public Administrative Proceedings made the following findings:

  • Microsoft recorded reserves, accruals, allowances, and liability accounts relating to marketing expenses, sales to original equipment manufacturers, accelerated depreciation, inventory obsolescence, valuation of financial assets, interest income, and impairment of manufacturing facilities that did not have properly substantiated bases, as required by GAAP. From 1995 through 1998, the total balance of these reserve accounts ranged from approximately $200 million to $900 million. (As CFO.com reported earlier this week, reserve accounts are the most common type of earnings management attempt. To read the full story, click here.)
  • Microsoft’s filings with the commission included or incorporated by reference financial statements containing undisclosed and unsupported adjustments to reserve accounts that, to a material extent, did not comply with GAAP. By including these adjustments in its financial statements, Microsoft failed to accurately report its financial results, causing overstatements of income in some quarters and understatements of income during other quarters.
  • Microsoft failed to maintain sufficient documentation of the bases for these reserve accounts—and failed to apply its own accounting policy relating to the reconciliation of entries in its accounting system. Microsoft exempted the reserve accounts from its companywide requirement that every account be reconciled at least once each quarter and that the reconciliation include ascertaining if there existed adequate supporting documentation relating to activity in the account. As a result, Microsoft lacked important safeguards to ensure that adjustments to the reserve accounts and the balances of these accounts were appropriate or accurately reported in conformity with GAAP.

(Editor’s note: CFO staff writer Kris Frieswick recently interviewed Microsoft CFO John Connors. To read the full interview, go to “Microsofter…or Not?”)

Closing the Books Still a Chore

So much for the virtual close.

In a poll conducted by Hyperion, a business performance—management company, nearly half of the finance and IT managers said their financial reporting cycles are 11 business days—or longer.

The average closing cycle was 6 business days and the average reporting cycle was another 5.4 days.

Bear in mind, the SEC wants to shorten the filing deadlines for quarterly reports from 45 to 30 calendar days after period end, and from 90 to 60 calendar days after fiscal year end for annual reports.

“While many companies are struggling with overlong closing cycles, world-class companies are completing the entire closing and reporting cycle in fewer than five business days,” notes Nazhin Zarghamee, chief marketing officer at Hyperion. “Managers must be able to have information that allows them to react in real time to their business. This requires having the numbers at their fingertips.”

And yes, we said chief marketing officer.

Trump Dumps Andersen

Trump Hotels & Casino Resorts Inc. dumped Andersen as its independent auditor, replacing the firm with Ernst & Young. Andersen had served as Trump’s accountant since it went public in 1995.

As CFO.com reported earlier, management at the hotel and casino operator consented in January to a cease-and-desist order issued by the SEC. The order stems from an SEC investigation into a statement issued by Trump Hotels & Casino Resorts back in October 1999.

In that release, Trump Hotel management reported that the company turned a profit of $14 million in the third quarter of 1999, excluding a one-time charge of $81 million. Management at the casino and resort operator also noted that net income per share for the quarter came in at .63 cents a share, exceeding First Call estimates of .54 cents a share. The statement went on to quote CEO Trump, who noted that the good numbers were due to improvements in the company’s operating performance.

But according to the SEC, the statement failed to mention that the revenue numbers actually included a one-time accounting gain of around $17 million. That gain came from the earlier termination of a lease agreement with the All Star Café, which leased restaurant space at the Trump Taj Mahal Casino Resort in Atlantic City. Without that one-time fillip (and accounting for minority interests), Trump Hotels would have actually only turned around a $3 million profit for the quarter—and would not have met analyst estimates.

While consenting to the order, Trump management did not admit to or deny any wrongdoing. The SEC order was its first enforcement action relating to non-GAAP financial statements. (To read more about Trump’s troubles with the SEC, click here.)

IT Insecurity

Eighty percent of all network security managers surveyed at last month’s Gartner Information Security Conference claim their biggest security threat comes from their own employees. This, according to a recent information security survey by Guardent Inc., a managed security services company. According to the survey, 58 percent claim the careless use of personal communications by their employees poses the most dangerous security risk to their networks. And, 22 percent point to deliberate insider breaches as their biggest concern.

According to the survey, employee carelessness appears to take the form of personal use of corporate computers. The majority of the information security experts claim that more than half of security breaches are caused by personal use of company computers. Personal E-mail and instant messaging are two of the biggest culprits.

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