Bally Total Fitness has blamed its former top two executives for making multiple accounting errors in recognizing revenue, which will result in a restatement of its financial results from 2000 through the first quarter of last year.
The Chicago Tribune reported that the fitness-center operator concluded a five-month internal investigation and issued a statement Tuesday that pointed to former Chief Executive Officer Lee Hillman and former Chief Financial Officer John Dwyer for fostering “a culture of aggressive accounting.” Two mid-level executives were also fired.
The review determined that Dwyer made a false and misleading statement to the Securities and Exchange Commission. Bally said that Hillman and Dwyer, who left Bally in 2002 and 2004, respectively, will receive no further payments under their severance arrangements. Bally said the company will "evaluate its legal options" with respect to those former executives.
Hillman, now president of Liberation Investment Advisory Group, and Dwyer both formerly worked for Ernst & Young on the team that audited Bally's former parent company. Bally CEO Paul Toback declined to say how their connection with the accounting firm might have influenced Ernst & Young auditors, or to specify missteps made by the accounting firm.
"We believe there were errors made by Ernst & Young," said Toback. "We didn't at all times get great advice."
KPMG is working on the restatements and is conducting new audits for the previous three years.
Controller Ted Noncek and Treasurer Geoff Scheitlin were also accused of improper conduct and were fired.
"I think we took an important step today," Toback. "This brings credibility and a fair amount of closure to what went on with the accounting and where responsibility lies for what happened."