Bally Total Fitness fired two finance executives and stopped making severance payments to its former CFO and CEO after an investigation into the company’s accounting practices found that the individuals engaged in improper conduct.
The two finance executives who were dismissed are vice president and controller Ted Noncek and vice president and treasurer Geoff Scheitlin, who also served as controller from 1997 to 2001. To help Bally complete its audits, the company has offered Noncek a short-term consulting opportunity.
In addition, Bally ceased making severance payments to former chief executive officer Lee Hillman, now president of Liberation Investment Advisory Group LLC, and former chief financial officer John Dwyer. Hillman also currently serves as chairman of the audit committee of HealthSouth Corp., which is currently trying to rehabilitate its image after suffering through its own accounting scandal.
According to the company, Hillman and Dwyer were responsible “for multiple accounting errors and creating a culture within the accounting and finance groups that encouraged aggressive accounting.” Bally added that the two executives had previously worked for the company’s former auditor, Ernst & Young, and that before they joined the company, they were partners on the engagement teams that audited Bally’s former parent company for several years.
The company also criticized Ernst & Young, asserting its former auditor “made several errors in the course of their work,” and added that it is currently evaluating its legal options with respect to the Big Four firm.
Bally announced in November 2004 it would restate its financials from 2000 through the first quarter of 2004, primarily as a result of errors in its revenue recognition methods.
Separately, the company announced that it has identified deficiencies in its internal controls over financial reporting that, either individually or in the aggregate, constitute material weaknesses. They include a lack of clear, acceptable policies on financial reporting, the lack of a permanent CFO, ineffective delegation of authority and responsibility, insufficient instruction regarding accurate and reasonable assumptions and judgments, and insufficiently experienced and trained staff.