Accounting "Irregularities" on the Rise in the Recession
Reuters is reporting accounting fudging and fraud are on the rise in the US as a result of "pressures" for companies to perform despite the hostile economic environment.
Sure, there's that and then there are also the auditors but we'll leave them be for now, it's Friday and we're feeling nice.
Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers of U.S. companies.
"When things get difficult companies tend to stretch even further and utilize whatever games that they can get away with and sometimes they don't get away with them," David Tice, chief portfolio strategist for bear markets at Federated Investors, said in an interview with Reuters television on Wednesday.
Accounting irregularities are increasingly showing up in U.S. regulatory filings and corporate announcements.
Shares of Apollo Group Inc (APOL) sank 18 percent on Wednesday after the parent of University of Phoenix said the U.S. Securities and Exchange Commission had launched an informal inquiry into its revenue recognition practices.
Apollo is just one of several big name companies that have disclosed they have accounting issues over the last few weeks.
Internet retailer Overstock.com (OSTK) said last month that it was under scrutiny from government regulators over the way it accounted for some expenses. The company restated financial results in 2006 and 2008.
New York Sports Clubs owner Town Sports International Holdings Inc (CLUB) said last month that the SEC was formally investigating its deferral of certain payroll costs related to membership sales.
And jewelry chain Zale Corp (ZLC) said it will report fourth-quarter financial results on Thursday, after it twice-delayed its earnings results due to an accounting review of prepaid advertising costs.
"Statistically you can show any time you have a recession or some type of tremendous decline in an economy you're going to see financial pressures on companies," said Bruce Dorris, program director at the Association of Certified Fraud Examiners, noting that corporate employees can sometimes be motivated to be overly aggressive with accounting or commit outright fraud to meet targets, particularly in difficult economic times.
Fraud in non-financial sectors? Say it ain't so. Well why should auditors and management be committed to truthful accounting if the example set by our powers that be is to deny, deny, deny?
Professor of Economics and Law at the University of Missouri and senior regulator during the S&L crisis of the 1980s, William Black blamed "a massive fraud" for the economic crisis on Bill Moyers earlier this year:
[They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up....
Geithner is ... covering up. Just like Paulson did before him....
These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed....
Until you get the facts, it's harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts....
[Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
They're deliberately leaving in place the people that caused the problem, because they don't want the facts. And this is not new. The Reagan Administration's central priority, at all times, during the Savings and Loan crisis, was covering up the losses.
[Question] So, you're saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?
That's right. And it's particularly a crisis that brings this out, because then the class of the banker says, "You've got to keep the information away from the public or everything will collapse."
Move along now, nothing to see on these cash flows...