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| 7-3-2005: Diebold accounting mistake ... |
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admin
Board Administrator
Username: admin
Post Number: 683
Registered: 12-2004
Best of Black Box? 
Votes: 7 (A keeper?) | | Posted on Sunday, July 3, 2005 - 10:20 am: | 
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Diebold took advantage of pre-holiday distractions to tuck an earnings restatement into the press, admitting its management had uncovered an "accounting mistake" in its ATM division. Sliding in alongside were safe harbor-type concerns about its election systems. Black Box Voting feels that this particular SEC disclosure will turn out to be of special interest, given what we have learned from our own investigations. Note the following items listed by Diebold: -- "potential security violations to the company's information technology systems" -- "challenges raised about reliability and security of election systems products, including the risk that such products will not be certified for use or will be decertified" -- and "unanticipated litigation, claims or assessments".
Bear in mind that such "safe harbor" statements are typical for public companies, who must include potential downside events in SEC-required statements. In fact, of more importance is when these specific statements started appearing, or any changes in these statements.
However, Black Box Voting feels that this particular earnings restatement, and these particular safe harbor statements are of special interest, because:
1) Security violations will become a much more significant concern when The Black Box Report comes out tomorrow. A product recall of the Diebold Precinct-based Optical Scan 1.94w system will be advisable, along with examination of certain items from recent elections.
2) Issues related to compliance with the Sarbanes-Oxley Act may surface in connection with two other problems our investigations have uncovered:
- Apparently incorrect public statements to regulatory bodies, by Diebold Election Systems, about the amount of money spent on lobbyists and "success fees," based on a comparison of the amounts in publicly disclosed reporting forms vs. check stubs and financial statements obtained by Black Box Voting
- Improper management of accounting documents, specifically, failure to safeguard documents (see auditing internal control over financial reporting guidelines, by placing nearly 400 pages of sensitive financial statements for the Diebold Election Systems division into various unsecured dumpsters easily accessed by the public.
These documents include check stubs, financial statements (including in-house financial worksheets for Diebold Inc.), invoices, accounts payable ledgers, accounts receivable ledgers, a cryptic financial statement pertaining to a $390,000 employment litigation matter in the Canadian Diebold Elections Systems office, in-house worksheets showing calculations for budgeting, payroll records, post-it notes, inter-office memos pertaining to budgets, purchasing, and sales plans, and unusual payments that should be further investigated.
After seeking legal advice on what to do with these documents, Black Box Voting decided to turn them over to the SEC for an evaluation of their impact with regards to the Sarbanes-Oxley Act, and the management responsibilities amendment to that act.
Note: If anyone can contribute more concise links to the .pdf files for the Act and the Amendments pertaining to management controls, that will save me time. We are finishing edits on the security alert just now... -- Bev
* * * * *
Here is the Diebold press release about its financial restatment:
NORTH CANTON, Ohio, June 30 /PRNewswire-FirstCall/ -- Diebold, Incorporated (NYSE: DBD - News) today announced it has lowered its second quarter and full-year earnings per share guidance for 2005, as its North America growth outlook has been revised downward and is now in line with current expectations of customer demand.
Additionally, the company has identified a reconciliation issue in its North America sales commission accrual account, as of December 31, 2004, with the impact on specific prior years yet to be determined. As a result of this reconciliation, the company has determined the commission account was under accrued by approximately $13 million at the end of 2004. This is a preliminary estimate and the final amount could vary. A thorough review is currently underway and is expected to be completed shortly. This amount is excluded from earnings estimates provided throughout the remainder of this outlook.
Revised Second Quarter and Full-Year Expectations
The company now expects second quarter earnings to be $.47 to $.50. Included in this earnings estimate are restructuring charges of $.04 per share and European Opteva manufacturing start-up costs and related issues of approximately $.03 per share. Excluding these one-time items, second quarter earnings per share are expected to be $.54 to $.57.
Full-year 2005 operating earnings are now expected to be $2.60 to $2.70. This range excludes manufacturing start-up costs and related issues of approximately $.04 per share, and restructuring charges of $.15 to $.30. The company has defined and is reviewing various options for restructuring and will provide a more definitive review of its anticipated restructuring costs in its second quarter earnings announcement. This revised earnings guidance compares to 2004 full-year earnings per share of $2.54.
Factors contributing to the lowered earnings expectations are:
- Growth in the company's North America business is lower than its
previous expectations as upgrade/replacement activity in the regional
bank segment has developed at a slower than expected rate.
- A proportionately higher mix of revenue from the company's
international operations and election systems businesses, which carry
lower margins
- A negative foreign currency exchange impact due to the strengthening of
the dollar, particularly against the Euro which moved from
approximately $1.30 to $1.20 during the second quarter
- Continuing cost challenges in the transition to a single, global
product platform
Cost-Reduction Initiatives
To further strengthen its competitiveness, the company is initiating several actions now and for the remainder of 2005:
- The elimination of approximately 300 full-time positions in North
America and Western Europe. This action includes jobs affected by the
recently announced closing of the Danville, Va., manufacturing facility
- Further global manufacturing realignment and facility consolidation
- Acceleration of the consolidation of research and development
operations and service functions
- Further product cost reductions through procurement, manufacturing and
design improvements
"We are disappointed with our financial performance during the quarter and with our revised outlook for the year," said Walden W. O'Dell, Diebold chairman and chief executive officer. "Our global markets remain healthy as we once again experienced strong growth in orders and backlog during the quarter. However, our North America revenue outlook is lower than previously expected, resulting in a lower profit outlook. In addition, we continue to face challenges on the cost side as we transition to a global product platform. We are moving quickly and decisively to improve our performance by accelerating our cost-reduction initiatives."
O'Dell added, "There is tremendous value in Diebold, from the strength of our brand to our world-class technology and product solutions. We are confident that by taking these aggressive cost actions now, we will be able to leverage our leadership position in the marketplace and ensure long-term, profitable growth."
Investor call information
A special investor conference call with Walden W. O'Dell, chairman and chief executive officer, and Gregory T. Geswein, senior vice president and chief financial officer, will be held today at 10 a.m. (ET). This conference call will last approximately 30 minutes. Participants should plan to dial in 15 minutes prior to the session. Details on the call are as follows:
Call-in numbers Passcode Time/Date
Conference call (913) 981-5525 5854588 10 a.m. (ET), 6/30/05
Call replay (719) 457-0820 5854588 Begins: 1 p.m. (ET), 6/30/05
Ends: 5 p.m. (ET), 7/7/05
Also, Diebold will release second quarter financial results on July 27, before trading begins on the New York Stock Exchange. Walden W. O'Dell and Gregory T. Geswein will discuss the results during a conference call scheduled to begin at 10 a.m. (ET) that day. The conference call will last approximately one hour.
Participants should plan to dial in 15 minutes prior to the session. Details on the call are as follows:
Call-in numbers Passcode Time/Date
Conference call (913) 981-4912 276504 10 a.m. (ET), 7/27/05
Call replay (719) 457-0820 276504 Begins: 1 p.m. (ET), 7/27/05
Ends: 5 p.m. (ET), 8/3/05
Live access to both calls is also available on Diebold's Web site at http://www.diebold.com. The replays can be accessed on the site for three months after the calls. Detailed financial information regarding Diebold's second quarter results will be available on the company's Web site.
Forward-Looking Statements
In this press release, statements that are not reported, financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements give current expectations or forecasts of future events and are not guarantees of future performance. These forward-looking statements relate to, among other things, the company's future operating performance, the company's share of new and existing markets, the company's short- and long- term revenue and earnings growth rates, results of the review of the company's North American sales commission accrual account and the company's implementation of cost-reduction initiatives. The use of the words "believes," "anticipates," "expects," "intends" and similar expressions is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the company. Although the company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:
- competitive pressures, including pricing pressures and technological
developments;
- changes in the company's relationships with customers, suppliers,
distributors and/or partners in its business ventures;
- changes in political, economic or other factors such as currency
exchange rates, inflation rates, recessionary or expansive trends,
taxes and regulations and laws affecting the worldwide business in each
of the company's operations, including Brazil, where a significant
portion of the company's revenue is derived;
- acceptance of the company's product and technology introductions in the
marketplace;
- unanticipated litigation, claims or assessments;
- the company's ability to reduce costs and expenses and improve internal
operating efficiencies;
- variations in consumer demand for financial self-service technologies,
products and services;
- challenges raised about reliability and security of the company's
election systems products, including the risk that such products will
not be certified for use or will be decertified;
- changes in laws regarding the company's election systems products and
services;
- potential security violations to the company's information technology
systems; and
- the company's ability to achieve benefits from its cost-reduction
initiatives.
Diebold, Incorporated is a global leader in providing integrated self- service delivery and security systems and services. Diebold employs more than 14,000 associates with representation in nearly 90 countries worldwide and is headquartered in North Canton, Ohio, USA. Diebold reported revenue of $2.4 billion in 2004 and is publicly traded on the New York Stock Exchange under the symbol 'DBD.' For more information, visit the company's Web site at http://www.diebold.com.
http://finance.yahoo.com/q?s=dbd&d=v1 |
kathleen_wynne
Voting Rights Forum Participant
Username: kathleen_wynne
Post Number: 87
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 12:34 pm: |
|
Bev,
Following is a link to the Sarbanes-Oxley Act that includes the section on management controls you were referring to above:
http://news.findlaw.com/hdocs/gwbush/sarbanesoxley072302.pdf
Check out Sections 404 and 802, respectively. I think these sections spell it out pretty well, don't you?
Kathleen
Thanks, Kathleen, knew you'd have a good handle on this. However, the link flips to the basic findlaw web page. I don't know why. We can use HG's link below, but still need the link to the amendment. That was executed in May 2003, I think, or May 2004. |
harmonyguy
Voting Rights Forum Participant
Username: harmonyguy
Post Number: 61
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 12:35 pm: |
|
Is this what you're looking for?
PDF of Sarbox.
www.sec.gov/about/laws/soa2002.pdf
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS
SEC. 402. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS
hg
HG, as always, you are an absolute trove of information. This is the main 2002 Act. Many thanks. There is also an Amendment to it which spells out the specific acts that are considered to be bad management control, or failure to properly audit internal controls. It's got huge teeth. If we don't find it today, I'll hunt later this week. I always feel like changing "hg" to "hug" -- Bev |
kathleen_wynne
Voting Rights Forum Participant
Username: kathleen_wynne
Post Number: 88
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 1:54 pm: |
|
Bev,
Do a google search for H.R. 3763. You will find [PDF] Sarbanes-Oxley Act of 2002 listed. This is where you'll find what you're looking for.
Kathleen |
kathleen_wynne
Voting Rights Forum Participant
Username: kathleen_wynne
Post Number: 89
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 2:04 pm: |
|
Bev,
Following is from the SEC:
SEC Implements Internal Control Provisions of Sarbanes-Oxley Act; Adopts Investment Company R&D Safe Harbor
FOR IMMEDIATE RELEASE
2003-66
Washington, D.C., May 27, 2003 — The Securities and Exchange Commission today voted to adopt rules concerning management's report on internal control over financial reporting and certification of disclosures in Exchange Act periodic reports. The Commission also voted to adopt new Rule 3a-8 under the Investment Company Act to provide a nonexclusive safe harbor from the definition of investment company for certain research and development companies.
Management's report on internal control over financial reporting and certification of disclosure in Exchange Act periodic reports
The Commission voted to adopt rule and form amendments to implement requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Management's Report on Internal Control over Financial Reporting
Section 404 of the Act directs the Commission to adopt rules requiring each annual report of a company, other than a registered investment company, to contain (1) a statement of management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) management's assessment, as of the end of the company's most recent fiscal year, of the effectiveness of the company's internal control structure and procedures for financial reporting. Section 404 also requires the company's auditor to attest to, and report on management's assessment of the effectiveness of the company's internal controls and procedures for financial reporting in accordance with standards established by the Public Company Accounting Oversight Board. The Commission received over 60 comments on the Section 404 proposals that expressed general overall support for the Commission's approach to implementing Section 404 of the Act. The adopting release will incorporate a number of changes recommended by commenters.
Under the final rules, management's annual internal control report will have to contain:
a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting for the company;
a statement identifying the framework used by management to evaluate the effectiveness of this internal control;
management's assessment of the effectiveness of this internal control as of the end of the company's most recent fiscal year; and
a statement that its auditor has issued an attestation report on management's assessment.
Under the new rules, management must disclose any material weakness and will be unable to conclude that the company's internal control over financial reporting is effective if there are one or more material weaknesses in such control. Furthermore, the framework on which management's evaluation is based will have to be a suitable, recognized control framework that is established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment.
The new rules implementing Section 404 of the Act will define the term "internal control over financial reporting" to mean
a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.
The Commission also voted to adopt amendments requiring companies to perform quarterly evaluations of changes that have materially affected or are reasonably likely to materially affect the company's internal control over financial reporting.
Compliance with the rules regarding management's report on internal controls will be required as follows: companies, other than foreign private issuers, meeting the definition of an "accelerated filer" in Exchange Act Rule 12b-2 (generally, U.S. companies that have equity market capitalization over $75 million and have filed an annual report with the Commission) will be required to comply with the management report on internal control over financial reporting requirements for fiscal years ending on or after June 15, 2004, and all other issuers, including small business issuers and foreign private issuers, will be required to comply for their fiscal years ending on or after April 15, 2005.
Kathleen
Yep. That's it. Thanks. -- Bev |
harmonyguy
Voting Rights Forum Participant
Username: harmonyguy
Post Number: 62
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 3:54 pm: |
|
Don't know if this helps:
http://www.sec.gov/rules/final/33-8238.htm
HG |
catherine_a
Frequent Voting Rights Forum Participant
Username: catherine_a
Post Number: 392
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 4:34 pm: |
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Wow, harmonyguy. I don't know if this is what Bev was looking for but it sure looks relevant to me! Especially section c. (And probably section a as well.)
I'm glad I'm not Diebold's auditor (or CEO) right now.
(Message edited by catherine_a on July 03, 2005) |
harmonyguy
Voting Rights Forum Participant
Username: harmonyguy
Post Number: 63
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Sunday, July 3, 2005 - 5:23 pm: |
|
Thanks, Catherine. We aim to please.
HG
Thanks. Note that (somewhere in the byzantine layers of addenda) the information says that if a breach of internal controls occurs, they are automatically inadequate. Also, that if materials come into the possession of others, and the materials can have an adverse affect on the company's financial statements, that is considered a breach of internal controls. Many of the materials we found, had we chosen to use them in that way (i.e., had we chosen to pay a surprise visit to a Capital Markets Day and slip brown envelopes to the analysts), could have had a very material affect.
In a way, the Juan Andrade materials may have had a material affect. As soon as we exposed the $20,000 per month payments taking place to Mr. Andrade, we received notice that the $45 million Cook County/Chicago deal might be heading away from Diebold, and indeed, Diebold lost that sale. Certainly, it could be that Cook/Chicago never were interested in Diebold at all. Only an insider would know. I do know that one such individual was considering Diebold, but veered away shortly after the Andrade story.
Given that Diebold at one time announced its projected revenues from its election division for 2005 at a paltry $100 million, that $45 million deal going south would certainly have affected the financials, of the subsidiary. Note that the elections division does not produce a significant amount of revenue for the rest of the company.
Of more potential bad news for the financials are the investigations of some of the payee situations. -- bev |
catherine_a
Frequent Voting Rights Forum Participant
Username: catherine_a
Post Number: 394
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Monday, July 4, 2005 - 9:16 am: |
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I loved this bit (don't you love how they couch things in terms the average person will not understand):
"Additionally, the company has identified a reconciliation issue in its North America sales commission accrual account, as of December 31, 2004, with the impact on specific prior years yet to be determined. As a result of this reconciliation, the company has determined the commission account was under accrued by approximately $13 million at the end of 2004. This is a preliminary estimate and the final amount could vary. A thorough review is currently underway and is expected to be completed shortly. This amount is excluded from earnings estimates provided throughout the remainder of this outlook."
A reconciliation issue?! To the tune of $13 million?! (Though that is just a "preliminary estimate" and the "final amount may vary.") That would be more than 10% of their projected 2005 earnings from their election division earnings! (Before they lost the $45 million sale to Cook County/Chicago, that is.) That is quite an "oops" isn't it?!
Since they say, "with the impact on specific prior years yet to be determined" they don't even seem to know how far back in time this goes. Must have been quite a bad-hair day. Or, maybe it was a bad-hair year. Or two or three years. Or ten. Maybe whoever was responsible for this "reconciliation issue" is bald by now, after so much bad-hair time.
What does it mean that the sales commission account was "under accrued"? Since they say "This amount is excluded from earnings estimates provided throughout the remainder of this outlook", I assume this is bad news to stockholders--money which had been spent (like maybe the payments to Andrade) but wasn't in the books, or something along those lines?
Or maybe they took back some of Andrade's commission since the Cook County sales didn't go through?
Is there any way of finding out what the employee litigation in Diebold Canada was about? I wonder if they declared this litigation in previous forward-looking statements.
It is pretty interesting that you can see a possible relationship between certain decisions and the posting on BBV of the Andrade video. I think a lot of people never knew quite what to do with the info from that video. It sure didn't smell good. Of course, we didn't know about all those documents in the trash! Maybe someday you'll say more about how you happened to come across them. |
ubetchaiam
Voting Rights Forum Participant
Username: ubetchaiam
Post Number: 16
Registered: 06-2005
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Monday, July 4, 2005 - 10:19 pm: |
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Hopefully this gets to you before it's useless but I suggest you also go to http://www.sec.gov/rules/final.shtml
This is what it actually comes down to when it comes to 'enforcement'. |
admin
Board Administrator
Username: admin
Post Number: 690
Registered: 12-2004
Best of Black Box? N/A
Votes: 0 (A keeper?) | | Posted on Monday, July 4, 2005 - 10:58 pm: |
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Hey, ubetcha --
Actually, they are really pounding people with Sarbanes-Oxley. Public companies that do not comply can get delisted.
Believe me, no public company wants to get into the SEC's sights on a SOX violation.
Which is why we needed to make sure the SEC gets the documents. |
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