Disney whistleblower told SEC the company inflated revenue for years
A former Walt Disney Co. accountant says she has filed a series of whistleblower tips with the Securities and Exchange Commission alleging the company has materially overstated revenue for years.
Sandra Kuba, formerly a senior financial analyst in Disney's revenue-operations department who worked for the company for 18 years, alleges that employees working in the parks-and-resorts business segment systematically overstated revenue by billions of dollars by exploiting weaknesses in the company's accounting software.
[...] A Disney spokesperson said the company had reviewed the whistleblower's claims and found that they were "utterly without merit."
Kuba's whistleblower filings, which have been reviewed by MarketWatch, outline several ways employees allegedly boosted revenue, including recording fictitious revenue for complimentary golf rounds or for free guest promotions. Another alleged action Kuba described in her SEC filing involved recording revenue for $500 gift cards at their face value even when guests paid a discounted rate of $395.
[...] Kuba's filing alleges that flaws in the accounting software made the manipulation difficult to trace, though the consequences could be significant. In just one financial year, 2008-09, Disney's annual revenue could have been overstated by as much as $6 billion, Kuba's whistleblower filing alleges. The parks-and-resorts business segment reported total revenue of $10.6 billion in 2009, according to its annual report filed with the SEC.
Also at Deadline and Bloomberg.
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The Walt Disney Company has a reputation for lobbying hard on copyright issues. The 1998 copyright extension has even been dubbed the “Mickey Mouse Protection Act” by activists like Lawrence Lessig that have worked to reform copyright laws.
This year, the company is turning to its employees to fund some of that battle. Disney CEO Bob Iger has sent a letter to the company’s employees, asking for them to open their hearts—and their wallets—to the company’s political action committee, DisneyPAC.
In the letter, which was provided to Ars by a Disney employee, Iger tells workers about his company's recent intellectual property victories, including stronger IP protections in the Trans-Pacific Partnership, a Supreme Court victory that destroyed Aereo, and continued vigilance about the "state of copyright law in the digital environment." It also mentions that Disney is seeking an opening to lower the corporate tax rate.
Specific points:
- This is apparently common.
- Disney even offers automatic deduction from your payroll; how thoughtful!
- Legally, this isn't supposed to affect you and your employment (not provably, at least).
This is kind of ridiculous.
The Walt Disney Co. has set a $52.4 billion, all-stock deal to acquire 20th Century Fox and other entertainment and sports assets from Rupert Murdoch's empire. The deal between Disney and 21st Century Fox marks a historic union of Hollywood heavyweights and a bid by Disney to bolster its core TV and film businesses against an onslaught of new competitors in the content arena.
Disney is betting on an ambitious purchase of a sizable chunk of 21st Century Fox, hoping that more cable networks, production studios and other properties will buoy it into the future as it dives into the direct-to-consumer streaming distribution business with sports and entertainment services planned to launch in 2018 and 2019, respectively.
http://variety.com/2017/biz/news/disney-fox-merger-deal-52-4-billion-merger-1202631242/
Also at The NYTimes, The Verge, and the The LATimes
CNet:
Disney is holding talks with AT&T to buy the 10 percent stake in the streaming service that the carrier holds through its WarnerMedia unit, according to a report by Variety, citing an unnamed source with knowledge of the discussions.
That raises the potential of Disney controlling 70 percent of Hulu, up from its current 30 percent stake, and it would leave Comcast as the only other owner.
Is Disney pre-emptively positioning to kill a rival to its soon-to-launch Disney+ streaming service, or does it intend to compete with itself?
(Score: 1, Disagree) by shrewdsheep on Friday August 23 2019, @02:27PM (9 children)
You have to do double entry bookkeeping. First, if you book $500 but only $395 came into the bank account, the remaining $105 have to be booked somewhere else which creates an account unaccounted for. Second, it is very detrimental for Disney to report more revenue than they actually have as they have to pay taxes for income they did not have. So maybe a fraudulent manager who sought person gain but no fraud by the company (maybe incompetence).
(Score: 4, Funny) by DannyB on Friday August 23 2019, @02:42PM (1 child)
What kind of cartoon comedy are you talking about trying to have Mickey Mouse and Donald Duck do accounting -- with a bunch of other loose animals running around.
Disney (or any corporation) would try to inflate revenues, or deflate true costs or any other type of accounting games.
I'm shocked, shocked to hear there are accounting games going on in here!
If you think a fertilized egg is a child but an immigrant child is not, please don't pretend your concerns are religious
(Score: 0) by Anonymous Coward on Friday August 23 2019, @03:03PM
Well, better that pair doing the dodgy accounts than Pinoccio if the SEC come a-calling....
(Score: 2, Interesting) by Anonymous Coward on Friday August 23 2019, @02:54PM (1 child)
The $105 is a rebate. There are special rules for rebates. I believe this is supposed to be recorded as a contra-cost-of-goods-sold, but if they are reporting it as an operating expense, they they are overstating revenues. Not sure about that, if somebody knows better feel free to correct me. There probably is an SEC reg for this. Any overstating revenues only increases taxes if you are turning a profit. Otherwise it could be called stock manipulation.
In any case the whistleblower is losing her job forever. So hopefully she filed her claim correctly. In any case no executives will go to jail.
SSDD
(Score: 1, Interesting) by Anonymous Coward on Friday August 23 2019, @04:03PM
We had managers that would sell services/products to his friends really cheap (under cost) then refund those friends the full amount. Sometimes refunding a recalled product or exchange (free) even though they never owned any of it. It was driving up sales figures but the refunds didn't count because those were allotted as a write-off. The district auditor never found it even when a whistleblower pointed it out.
(Score: 2) by All Your Lawn Are Belong To Us on Friday August 23 2019, @05:03PM (2 children)
Goodwill.
Only if they're using cash-based accounting. Seriously (no joke) they are probably using accrual-based accounting which lets them count the income when it becomes a receivable and not when the actual cash is deposited (cash-based accounting). Then the accrued receivable is transferred (at a discount) to an offshore holding facility. Payment is made offshore and a lower tax rate is paid to..... wherever.
Of course. The shenanigans at Enron wasn't a corporate problem either but only individuals. ;)
This sig for rent.
(Score: 3, Interesting) by All Your Lawn Are Belong To Us on Friday August 23 2019, @09:18PM (1 child)
Should have also said that what was being accused here wasn't what I said, but it almost certainly utilized accrual accounting for part of it. From TFA:
In the first paragraph (not the second) all of those actions can be covered on accruals that either do or don't receive a counter-expense. For example, give away a complimentary golf round and then write the income off against expenses to goodwill or customer relations, or even bad debt (although writing off income you knew you never would receive to a bad debt is shady as that posits you knew it was bad debt beforehand). If that's what this was, not surprised that it doesn't have a lot of merit as AFAIK that's perfectly legal. Booking the income from a discounted gift card and then expensing the $105 to promotions.... If one is on accrual accounting I find it hard to understand the problem. Yes, Disney would show higher incomes than what cash came in but they also record expenses of the lost income of the discount (or whatever). The trick would be those do not have be recorded in the same period. Yet it's not particularly odorous. Investors should understand such basics. (Empahsis should...)
This sig for rent.
(Score: 0) by Anonymous Coward on Saturday August 24 2019, @08:37AM
and then claim you have billions coming in? how much is real?
(Score: 3, Funny) by EJ on Friday August 23 2019, @07:26PM
HAHAHAHAHAHA ROFLMAO! Disney...pay taxes... You kill me.
(Score: 2) by darkfeline on Saturday August 24 2019, @02:02AM
>it is very detrimental for Disney to report more revenue than they actually have as they have to pay taxes
Last I checked, big corporations don't pay very much in taxes at all, even though they allegedly have very high revenue.
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(Score: 5, Interesting) by ikanreed on Friday August 23 2019, @03:09PM (7 children)
The bubble this time is 100% under-financialized corporate debt. It's at unprecedented levels, and it was used for completely unwise things like stock buybacks. I'm calling it now. Whole bunch of 401k owners left holding the bag as stocks turn out to be massively massively overvalued and debt serviced ahead of stock.
(Score: 2) by Farkus888 on Friday August 23 2019, @03:56PM (3 children)
The difference in wealth growth between the bottom 80% and the top 20% after the last crash almost perfectly tracks the growth in the stock market over that time. The lower wealth group were more skittish and didn't put what money they did have back into the market. It hurts today but you shouldn't need that money for years anyway. Statements like this encourage that mistake.
(Score: 3, Insightful) by ikanreed on Friday August 23 2019, @03:59PM (1 child)
The problem being that no one has any savings because housing prices eat, at bare minimum, a full half of income to the bottom 50% of workers. No savings in the bank vs no savings in the stock market are the same thing.
Now I've got a few stocks and a couple 401ks, and am not suffering that situation, but come on man, it's not cowardice. Don't be stupid.
(Score: 2) by Farkus888 on Friday August 23 2019, @10:13PM
I saved while in that low group, thousands a year every year. It isn't always fun but that doesn't make it impossible. I also didn't use the word cowardice for a reason. It is far too harsh. For that bottom group the 30% dip looks like the difference between a reasonable chance at retirement and a wasted effort saving in the first place. It is true that I can't speak with certainty about that many people all at once. The net worth graph by income starts diverging much faster after 2008 though. I also personally lost half of my less that average savings but now look like a rockstar on those net worth charts even before you account for my age. I personally talked to people who chickened out though and they'll never be able to catch up even though we have the same income.
(Score: 2) by JoeMerchant on Friday August 23 2019, @05:18PM
When you get into the bottom 80% wealth group, you start encountering a lot of negative disposable incomes. Blame consumerism or whatever you like, so many people in this group are in debt for their house, cars, and last week's trip to the movies - they might do the 401(k) thing at work if there's a decent company match, or they might not, because: no spare money.
Prior to 2008 I didn't have an IRA, after the crash I opened a Roth, sold my crashed stocks, and bought back 2 years' IRA limit worth of those stocks in the Roth. Sell at a loss - get the tax break, then buy in the Roth and take the bounce tax free. My cube-mate just sold his stocks - which I think a lot of people did do... of course, he also held on to his house in the Detroit suburbs... some people just never catch a break.
Україна досі не є частиною Росії Слава Україні🌻 https://news.stanford.edu/2023/02/17/will-russia-ukraine-war-end
(Score: 2) by eravnrekaree on Friday August 23 2019, @05:31PM (2 children)
While the stock market has a great run up, and many say that people who did not buy in missed out, the problem is the elites rode it up, but they will also know when its time to get out. But the poor schmuck with their 401(k) cant get out and will be wiped out. So just as important as getting in, is getting out in time. Most 401(k) and buy and hold strategies are designed for the poor schmuck, who gets wiped out and then has to wait years to recover.
(Score: 0) by Anonymous Coward on Friday August 23 2019, @10:09PM
I have put in 100k. I now have '800k' I think I will do just fine.
(Score: 3, Informative) by Farkus888 on Friday August 23 2019, @10:24PM
7% annually accounting for crashes and inflation. Better than any bank account by a lot.