From our One-Man’s-Ceiling Department:
The recent string of corporate accounting scandals may have put investment bankers on unemployment, pummeled investors, and tarnished the reputations of corporate executives.
But there’s one group that’s actually benefited from NumberGate. According to USA Today, forensic accountants and other investigators of corporate crime are in great demand these days.
“Companies know that fraud is epidemic,” Tom Golden, a partner at PricewaterhouseCoopers’s investigations and forensics practice, told the paper. “The phone is ringing off the hook.”
In fact, top firms expect revenue from forensic-accounting services to grow by 20 percent to 50 percent this year. As a result, hiring of investigators could rise 50 percent, according to the paper.
Bidding wars recently broke out for the hottest forensic accountants and executives, who command yearly salaries of $80,000 to $200,000, said the report.
Meanwhile, auditors are even going as far as training employees in forensic accounting. For example, PwC hopes to start fraud training next year for all 14,000 of its U.S.-based auditors, said the paper.
Since the late-1990s boom, the Big Four accounting firms (PwC, Deloitte & Touche, Ernst & Young, and KPMG), as well as corporate-security firm Kroll, have hired hundreds of forensic accountants. Typically, forensic accountants are CPAs and corporate auditors trained to identify such crimes as securities fraud, tax scams, embezzlement, and money laundering.
They’ve also hired dozens of investigators and attorneys from law enforcement and government agencies, including the FBI, the Securities and Exchange Commission, and the IRS, the paper reported.
Of course, the explosion in accounting scandals and last summer’s passing of the Sarbanes-Oxley Act have dramatically heightened the awareness and importance of good governance and accurate—and forthright—financial reporting.
“Forensic accounting is recession-proof” because fraud doesn’t follow economic cycles, Howard Silverstone, a principal at Kroll, told USA Today.
Also, investigators are concerned that white-collar criminals are using increasingly sophisticated technology and accounting shenanigans to hide fraud.
The growth in forensic accountants somewhat tracks the overall need for auditors. Available jobs for accountants are expected to grow by 20 percent to 1.3 million by 2008, according to the Bureau of Labor Statistics, which expects many jobs to remain unfilled.
SEC Looking at Possible Certification Violations
Speaking of investigators: the SEC is looking into possible violations at a small number of companies stemming from their financial certifications, according to Dow Jones.
“We have made appropriate referrals,” said Alan Beller, head of the division of corporation finance, which reviews financial filings. He was speaking Friday at the annual “SEC Speaks” conference sponsored by the Practising Law Institute.
In August the SEC mandated that chief executive officers and chief financial officers vouch for the accuracy of their company’s financial reports.
On Saturday the SEC’s head of enforcement, Stephen Cutler, declined to confirm referrals had been sent to his office, according to accounts of the conference. But he made it clear that an executive’s signature attached to any untrue financial filings was actionable. “A false statement on a certification provides an independent basis for liability under the federal securities laws,” he reportedly told the audience.
This said, the SEC in general will probably wind up bringing fewer enforcement actions in the future than it did in the most recently ended fiscal year, Reuters reported, citing SEC enforcement division deputy director Linda Thomsen.
“I doubt you will see numbers in that range anytime soon. I think we’re probably in the high fours or low fives as a general matter in the foreseeable future,” Thomsen reportedly said in a panel discussion.
It would be hard to top last year’s total: the SEC brought a record 598 enforcement actions in the 12 months ended September 30, 2002. The second-highest total was 525 actions in fiscal 1999.
Cutler, however, played down Thomsen’s prediction, noting, “The numbers don’t tell the whole story.”
Indeed, in fiscal 2002, the SEC brought some of its largest and most high-profile cases ever. In fact, enforcement division associate director Thomas Newkirk told the audience there would be more cases coming involving undisclosed executive compensation and so-called unrelated-party transactions that sometimes hide executive compensation. “We’re turning over rocks in this area,” he added.
Asked about Tyco specifically, Newkirk said, “Tyco is stupefying in the grossness of the fraud that took place there,” adding it would be “discouraging” if Tyco were shown to be typical of Corporate America.
In a related matter, on Tuesday the new accounting oversight board is expected to vote on its first decision: to require both U.S. and non-U.S. audit firms to register with the board.
Zale, Spiegel Hire New Finance Executives
Zale Corp. named Mark R. Lenz group senior vice president and CFO.
The 47-year-old will oversee the accounting and control, planning, tax, and treasury functions at the company.
Lenz will report to Sue Gove, executive vice president and chief operating officer, who had previously retained the CFO responsibilities with her promotion to COO in August 2002.
Lenz, a certified public accountant, began his career with Zale in 1988 in the accounting department. Since that time, he has held various financial positions within the company, including director of corporate accounting, assistant controller, and senior vice president and controller.
Meanwhile, the Spiegel Group named James M. Brewster senior vice president and chief financial officer.
Brewster will have responsibility for the company’s financial planning and controls, as well as the catalog operator’s strategic activities in the legal, tax, investor relations, and loss prevention functions.
For the past 10 years, Brewster served as senior vice president and CFO for the company’s Newport News subsidiary.
Brewster joined Newport News in 1986 as manager of financial systems and moved up through the organization, serving as director of finance, director of inventory control, vice president and treasurer, and vice president and chief financial officer. In 1992 he was promoted to senior vice president and chief financial officer of Newport News.
In addition, the company said Brewster provided the certifications through amended filings with the SEC.
Spiegel also reported that John Steele was promoted to senior vice president and treasurer of company.
Last week, CFO.com reported that the SEC has launched an informal investigation into the conduct of Spiegel’s officers and directors, as well as into the company’s compliance with its disclosure obligations.
And finally, on Thursday management at embattled Dutch retailer Royal Ahold NV (see same story) said it plans to nominate Philips CFO Jan Hommen to the company’s supervisory board.
This announcement fueled speculation that Hommen might be moving over to the supermarket giant to fill the CEO post. However, on Friday Philips said Hommen was not planning to leave his current job.
“Hommen is committed to Philips and his role as CFO, and he’s not going anywhere,” Philips spokesman Jeremy Cohen told Reuters.
SEC Takes Action Against SmarTalk CFO
The SEC settled charges with the former CFO of a bankrupt provider of prepaid telephone cards and wireless services.
Under the deal, Glen Andrew Folck, the CFO of SmarTalk TeleServices Inc., agreed to pay a fine of $50,000 and disgorge illegally obtained stock market gains of nearly $23,000.
An administrative cease-and-desist proceeding and a related civil action was also taken against Folck.
The SEC said Folck violated antifraud, reporting, and books and records provisions of the federal securities laws in connection with materially false and misleading financial statements that SmarTalk filed with the commission from the third quarter of 1997 through the second quarter of 1998.
Some of SmarTalk’s misleading financial statements were also incorporated in registration statements for offerings of stock filed with the commission in September and December 1997 and in May 1998, the SEC added.
The commission said it found that SmarTalk falsely reported net income of $478,000 in its quarterly report for the third quarter of 1997 when, in fact, SmarTalk had losses that period. “The commission found that Folck knew or should have known that SmarTalk hid the losses by improperly capitalizing ordinary operating expenses and that the expenses were improperly treated as an asset,” the regulatory agency indicated.
In addition, the commission said that in SmarTalk’s annual report for its fiscal year ended December 31, 1997 (which included audited financial statements), the company reported a onetime, $25 million restructuring reserve after the it purchased several other prepaid telephone-card businesses.
“The commission found that Folck knew or should have known that the entire restructuring reserve did not conform to Generally Accepted Accounting Principles (GAAP) because the anticipated costs were not proper restructuring costs and the company had failed to properly establish a plan of restructuring,” the SEC added in its complaint.
The commission also found that on August 10, 1998, SmarTalk announced that its auditors had informed management about potentially significant issues with its accounting treatment for acquisitions that occurred during 1997 and certain other items relating to fiscal year 1997. The following day, SmarTalk’s stock price fell 57 percent.
Folck, however, apparently sold some stock as early as January 1998.
Folck, while consenting to the cease-and-desist order, did not admit or deny the SEC’s findings. He agreed to the $50,000 penalty and to disgorge nearly $23,000 relating to the January 1998 stock sales.