Bramwell’s Lunch Beat: CVS Is Now $20 Million Poorer Over Accounting Misdeedsby
House committee weighs evidence against IRS official
For the first time since it released President Nixon's tax returns in 1974, a House committee voted today to release confidential tax documents as part of a request for a criminal investigation into the IRS, Gregory Korte of the USA Todayreported.
After a two-hour closed-door meeting this morning, the Ways and Means Committee voted 23 to 14, along party lines, to publicly release its evidence against former IRS official Lois Lerner, culled from more than 700,000 pages of documents turned over to the committee by the IRS.
In a draft letter to Attorney General Eric Holder, the committee alleges that Lerner violated the civil rights of political groups seeking tax-exempt status, that she impeded the congressional investigation, and that she illegally released taxpayer information, said Representative Peter Roskam (R-IL).
Lerner's attorney, William W. Taylor III, called the timing for the vote “odd” because he hasn't heard directly from the committee.
“The committee's referral affects nothing. The Department of Justice is already investigating the IRS. This is just another attempt by Republicans to vilify Ms. Lerner for political gain,” he said, according to the article.
CVS to pay $20 million to settle SEC fraud charges
CVS Caremark Corp., the second largest US drugstore chain, will pay $20 million to settle US Securities and Exchange Commission (SEC) charges that it defrauded investors in 2009 during a debt offering and by accounting improperly for an acquisition, Jonathan Stempel of Reutersreported yesterday.
The SEC, which announced the settlement on Tuesday, said CVS failed to disclose while marketing $1.5 billion of bonds in September 2009 having recently lost significant Medicare and contract revenue streams in its pharmacy benefits manager business, including from the former Caremark Rx Inc. that it bought in March 2007, according to the article.
After CVS disclosed the problems on November 5, 2009, which resulted in a 20 percent plunge in its share price, the company further misled investors by manipulating its “retention rate,” thereby inflating its ability to retain business, the SEC said.
Stempel noted that CVS was also accused of having in November 2009 manipulated accounting for its October 2008 purchase of Longs Drug Stores Corp. The SEC said the changes improperly boosted profit by as much as 11.7 cents per share for the third quarter of 2009, enabling CVS to exceed rather than miss analyst forecasts.
“CVS broke faith with investors,” Andrew Ceresney, director of the SEC enforcement division, said in a statement, according to the article. “The intentional misconduct by CVS breached the core principle of fair and accurate reporting of financial performance.”
[Click here to read Bloomberg View columnist Matt Levine’s take on the CVS settlement with the SEC.]
Tax writers clash on paying for extending business breaks
Richard Rubin of Bloombergreported yesterday that the top lawmakers on the House Ways and Means Committee disagreed over whether extending tax breaks for research and international finance operations should be offset to prevent the US budget deficit from growing.
Ways and Means Committee Chairman Dave Camp (R-MI) has suggested making some lapsed tax breaks permanent and letting others expire. Congress has routinely extended many of the breaks without pairing them with spending cuts or tax increases, he said during a hearing on Tuesday.
Camp’s approach differs from the way he handled the expired breaks in the draft revamp of the US tax code he released in February. In that proposal, he started with the assumption that the tax cuts remained expired, which meant that he included enough revenue-raising provisions to pay for continuing the breaks, Rubin wrote.
Representative Sander Levin (D-MI), the top Democrat on the Ways and Means panel, said Camp was ignoring some expired provisions, such as the New Markets Tax Credit that promotes investment in struggling areas.
The Senate Finance Committee voted April 3 to extend almost all of the 55 tax breaks that expired on December 31, 2013, through 2015 without covering the cost of more than $85 billion in forgone revenue.
Internal auditor reports getting ‘sanitized’
Reports by internal auditors to board audit committees are often “sanitized” during prior interactions between senior management and internal audit, the audit committee chair of two different companies said last week, David M. Katz of CFOwrote.
John Fazio, the audit committee chair of life sciences company Sequenom, as well as executive search firm Heidrick & Struggles International, said that although he formally gets only terse reports from internal audit, he gets a much fuller picture of what’s really going on through frequent, informal meetings with internal auditors.
“A lot of times when reports are getting sanitized, I will find that out through the communications process,” Fazio stated during a recent PwC webcast, according to the article.
Fazio noted that sometimes such discussions prepare him to probe more deeply at audit committee meetings, Katz wrote.
“I know some of the questions to ask during audit committee meetings to bring out some of the points that have been reduced because of management’s sensitivity to them,” Fazio said.
According to Katz, all Fazio normally gets is “a very concise report from internal audit. They explain a little bit about the area they’re auditing, their processes of auditing, and their findings. And that’s all. So our view of the work being done by internal audit is [at a less detailed level] that management’s.”
A week before Tax Day, IRS misses crucial Windows XP deadline
Microsoft on Tuesday stopped providing free support and security updates for Windows XP, and among those who still need to make the transition to Windows 7 is the IRS, Andrea Peterson of the Washington Postwrote.
The agency is “struggling” to find $30 million to complete its move to Windows 7, according to Representative Ander Crenshaw (R-FL), chairman of the House Financial Services and General Government Subcommittee. During a hearing on the IRS budget on Monday, Crenshaw questioned why the agency had not prioritized the move “even though Microsoft announced in 2008 that it would stop supporting Windows XP past 2014,” according to the article.
IRS Commissioner John Koskinen defended the agency's efforts, noting that it has been operating amid budget uncertainty for years. The migration to Windows 7 was just one of nearly $300 million worth of IT projects that have not been completed due to funding shortfalls, he said.
In a statement to the Washington Post, the IRS confirmed that it was still in the process of transitioning the laptops and desktops at the agency from Windows XP to Windows 7, Peterson wrote.
IRS customer representative urged vote for Obama
Kim Dixon of Politicoreported today the Office of Special Counsel (OSC) has filed a complaint seeking disciplinary action against an IRS customer service worker in Kentucky accused of engaging in political activity at work by urging callers to vote for President Obama.
The OSC filed the complaint on Tuesday with the Merit Systems Protection Board, after a probe found the tax advisory specialist violated a law – the Hatch Act – against such political activity by federal workers.
According to Dixon, one taped call found the IRS official cited by OSC telling a taxpayer they should vote for Obama because “Republicans already (are) trying to cap my pension and … they are going to take women back 40 years.”
US attorney asks judge for three-year sentence for former KPMG partner
Federal prosecutors are recommending that Scott London, the former KPMG LLP partner who pleaded guilty last year in an insider-trading scheme, should be sentenced to three years in prison, Michael Rapoport of the Wall Street Journalreported yesterday.
In a court filing on Monday, the US attorney’s office in Los Angeles said London deserves the three-year sentence because of “the corrupt nature” of his activities and because he breached the trust that the firm and its clients had placed in him, according to the article. The sentence is also necessary to send “a message to others engaged in criminal insider trading that if they are caught, they will go to prison,” the US attorney's office said.
London admitted to passing sensitive information to a friend about KPMG clients like Herbalife Ltd. and Skechers USA.
London’s attorney, Harland Braun, has requested a sentence of probation for his client, with no jail time. Braun said in an interview on Tuesday that the government's recommendation was too harsh and that prosecutors were looking only “at the stupid acts [London] did that were inconsistent with the rest of his life,” Rapoport wrote.
[Click here to read AccountingWEB’s coverage of London’s court case.]
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- A four-decade tax war (The New Yorker)
- How the wealthy buy IRS tax audit immunity – with partnerships (Forbes)
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