Potential fraud at Disney?

[rteetz]

i think the dis should edit their article ; the title says "
Former Disney Accountant Claims Company Has Inflated Revenue For Year"
when she was actually a financial analyst; this is a significant difference

The original source also listed her as an accountant.

 

[JimmyBean42]

I agree that she has some credibility issues but we've also seen too many Corporate Audit teams be "duped" or in on the fix. And Big 4 external auditors are paid for by who? Plenty of companies have overstated the revenue or got caught manipulating their books...Enron. ComCast. Meryl Lynch. Bear Stearns. QWest. Tyco. and WorldCom are just a few that were BIG companies that got caught. We also have the new whistle-blower complaint to the SEC regarding GE's accounting practices. Another legacy company being questioned for their accounting. I think, especially in terms of legacy companies, the public's first instinct is to rely on their reputation and have more faith in the company and their accounting than they might warrant. It's the other reason, whether or not this whistle-blower is correct, why so many people would be hesitant to file such a claim against such a public and well loved company. Despite the possible payout she would be entitled too, the public would most likely not be on her side, and either way will be an uphill battle. It's also interesting that the SEC didn't entirely dismiss this claim to begin with.

Very good points and I agree on many. Big 4 external auditors can be easy to dupe, especially (and no offense to anyone who is currently an associate at one, I was once in that position too) when you are taking mainly kids right out of college with little experience who are going through a checklist and anyone with knowledge and experience can give them just enough to satisfy their audit, stop digging and go away. And def. legacy companies can get the benefit of the doubt in public opinion. Her facts just threw me off. She reported internally a few times over the course of almost 10 years but never once to the SEC until she got fired. $6 Billion in gift cards and freebies. We've all been to the parks and gotten "pixie dust". How many times was it a gift card or even a comped meal? Or was it more like "here's some free fast passes?", which cost nothing. If she had stated something like a $100 million in gift cards and freebies, even that I'd have a hard time believing but at least it would be not as far fetched as $6 Billion in one year. The SEC may find some issues or irregularities in their accounting, but I"m guessing it won't end up in a financial restatement and a decent fine.

 

[dlavender]

There are definitely some holes in her story. Do I believe you can overstate some revenue and and possibly skirt some accounting system controls? Absolutely. But as someone who sets up system controls for a living, you'd need a LOT of people to be in on this scam and also would have to dupe your Corporate Audit team and your Big 4 external auditor (in this case PwC). You are talking massive collusion here by hundreds of people. And only 1 person is speaking up?
She also claimed that park revenues overstated by $6 billion in a $10 billion year. No way you are overstating by more than 50% if you are just doing this from room allocations on taxes and gift cards. She also only brought these concerns to management a handful of times over almost 10 years? Conveniently only reporting it to the SEC after she was fired. Definitely some suspicious activity on both ends.

Yes. The amount of collusion necessary to pull this off would be historical. With Sox standards in place forms like PWC are audited by the PCAOB. Their audits are audited. This would be caught and not worth the risk for them.

Then Disney’s internal audit would have to be in on it. Then, the C-level would have to be in on it as well as the higher level accounting folks in charge of revenue accounting.

 

[JimmyBean42]

The original source also listed her as an accountant.

She's a good reporter, but having read her stuff for years she frequently targets Big 4 firms and you can bet she will at some point push a lot of blame on PwC for this one.

 

[PurpleHaze]

As an accountant (albeit in a different industry), I am a bit skeptical of her claims. First, a financial analyst is not an accountant, as the analysts in my company are very quick to point out. I would question on how much she actually understands GAAP standards. If I remember correctly, there are perfectly legitimate reasons to record a discounted gift card at face value. The $105 offset could be showing up in a different place. I don't work with gift cards, but I recall them being a pain to deal with the accounting. Also, the allegation is that almost 60% of the revenue is made up ($6 billion of 10.6 billion). That would be one heck of a blind eye by the auditors. Plus, that is saying parks and resorts only made 4 billion in revenue. Revenue, not income. Considering what I have paid for my onsite stays, that seems unlikely.

Not saying there might not be some shady stuff going on, but I have a hard time believing it is as large as claimed.

Speaking as an analyst, this is 100% true. I'll render no opinion on the rest of the claims by the whistle blower, but this is a very important distinction and should be kept in mind.

This made me laugh. I am a Financial Analyst typing this as I take a break from Financial Reviews woth our Division Managers.

I am not an accountant, but I do work with them, and yes I am quick to point out I am not an accountant. Its nice to know Im not the only one who feels this way. I have come across a few Financial Analysts that started their careers as Accountants. Its nice to understand GAAP but not necessary. I myself have a good understanding of how the finances work, but mostly as an Analyst im just looking at numbers and data sets and discerning patterns and anomolies. I too take her accusations with a grain of salt, as others have said the collusion alone needed to pull this off would be difficult to maintain. Many years ago I worked for a company called Healthsouth, in the aftermath of a large accounting fraud, so I did pick up on a few things needed to pull something like this off.

 

[NickC]

"Disney’s annual revenue could have been overstated by as much as $6 billion, Kuba’s whistleblower filing alleges."

That's a lot of gift cards.....

 

[Jennifer Brooklyn]

Very good points and I agree on many. Big 4 external auditors can be easy to dupe, especially (and no offense to anyone who is currently an associate at one, I was once in that position too) when you are taking mainly kids right out of college with little experience who are going through a checklist and anyone with knowledge and experience can give them just enough to satisfy their audit, stop digging and go away. And def. legacy companies can get the benefit of the doubt in public opinion. Her facts just threw me off. She reported internally a few times over the course of almost 10 years but never once to the SEC until she got fired. $6 Billion in gift cards and freebies. We've all been to the parks and gotten "pixie dust". How many times was it a gift card or even a comped meal? Or was it more like "here's some free fast passes?", which cost nothing. If she had stated something like a $100 million in gift cards and freebies, even that I'd have a hard time believing but at least it would be not as far fetched as $6 Billion in one year. The SEC may find some issues or irregularities in their accounting, but I"m guessing it won't end up in a financial restatement and a decent fine.

I agree with you in regards to her statements, I can’t imagine that with all the creative people at Disney they couldn’t come up with a more creative accounting practice than the gift card scenario. It will be interesting to see if that only what they are releasing at this time or if there are more accusations that they are holding back to protect her potential pay out.

 

[manning]

I worked for a large corporation. When internal audit indicated fraud Corporate security was brought in. Between the two they were very successful in catching those involved. And it didn't take long. A paper trail is hard to beat.

 

[SensesFailed]

Ignoring this reporter calling her an accountant and a financial analyst all in the span of a few sentences, to claim that Disney overstated their annual revenue by $6 Billion seems way too far-fetched for me. That would require a ton of lying from many people including higher management and PwC, one of the Big4. I know we have seen some accounting scandals involving one of the(former) Big accounting firms, but with everything that has been passed since 2000, I really am skeptical of her claims.

 

[danikoski]

There's a Sandy Kuba listed as a CPA for Disney on LinkedIn. So she may be both an accountant and financial analyst. Also, according to the article, she was fired about a month AFTER reporting to the SEC. She then filed a whistleblower complaint with OSHA after being fired.
I'm also not sure from the article if she filed both a whistleblower complaint and a separate wrongful termination suit. She may have pulled the wrongful termination suit. She may have created a hostile work environment, which is kind of what Disney alludes to, especially if she was very vocal to coworkers that she thought what they were doing was wrong or regularly called out coworkers. She worked there for 18 years, so it is a little odd that she was terminated shortly after reporting to the SEC.
Was there really a discrepancy of $6 billion? I doubt that. But the fact the SEC appears to be digging deeper into the matter over the course of an extended period of time tells me there may be smoke, and possibly fire.