NEW YORK — Revelations of an accounting scandal has left 14 execs at Cablevision-owned cable net AMC on the street, including long-time prexy Kate McEnroe.
Cablevision disclosed Wednesday that it has uncovered improper expense accounting at its Rainbow Media unit from 1999-2002. Employees faked invoices and booked expenses for one year when they should have waited until the next.
Cablevision, which posted revenues of more than $3 billion last year, called the amount in question — roughly $6 million — insignificant and said it won’t have to restate earnings. But the pre-emptive announcement of the improprieties make it clear Cablevision is eager to stave off the stigma of any impropriety, especially after scandals last year at rivals Adelphia Communications Corp. and Charter Communications Inc.
To deal with the matter further, the company’s audit committee hired William McLucas, an attorney at Wilmer Cutler & Pickering, to conduct an investigation. McLucas was formerly head of the Securities and Exchange Commission’s enforcement division and was hired by WorldCom Inc. in June 2002 to conduct an internal investigation into the accounting of that scandal-ridden company.
Considering the relatively modest size of the amount at issue in Cablevision’s case in comparison to the company’s total revenue and costs, it appears Cablevision is eager to stave off the stigma of any impropriety.
It also came soon after Cablevision joined forces with Edgar Bronfman, Jr. in a bid to acquire Vivendi’s Universal Studios. The cabler has agreed to contribute AMC and other Rainbow nets to U.
Cablevision, which initiated the audits, has apparently been sifting through documents since last December and had initially intended to simply reprimand those involve. But in this sensitive post-Enron time, Cablevision’s auditors recommended a stronger statement and mass firings.
Cablevision would not confirm the names of the 14 employees let go.
“The review to date has found that certain employees … inappropriately accelerated the accrual of marketing expenses and, in some cases, fabricated invoices,” Cablevision said late Wednesday. It has released its findings to the government.
“The company cannot tolerate any improprieties related to financial matters,” added CEO James Dolan.
The company didn’t address motivations but it doesn’t appear to have been personal enrichment for those involved. It may have been related to burnishing the financials or trying to account for budget money that wasn’t spent by year end.
To date, the review has uncovered $6.2 million in 2003 expenses were accelerated and improperly booked in 2002 rather than 2003. Similar amounts were improperly recorded in 2000 and 2001. All but $1.7 million of the amount in 2003 was identified and reversed prior to the release of Cablevision’s 2002 results.
Cablevision has retained William McLucas of Wilmer, Cutler & Pickering to conduct a more thorough five-month investigation and hire forensic accountants for the review.
“In another era, this might have been business as usual especially since no-one was directly profiting from it,” said one stunned staffer. “No one was on the make here. It’s really very sad.”
“All companies are on high alert these days,” said a Wall Street analyst who hoped the company’s decision to disclose the discrepancy on its own was a mark of good corporate governance rather than a harbinger of worse disclosures to come.
“Still, it makes me a little nervous that they’ve retained an outside auditor to have a closer look.”
Cablevision shares are expected to take a hit when they open for trading today. Ahead of the press reease announcing the news, Cablevision shares closed the day down 31¢ at $22.54 on the New York Stock Exchange. Shares fell another 91¢ to $21.63 in after hours trading.
(Jill Goldsmith contributed to this report)