August 13, 2020

Hippies

How Long Should an Accountant Wait to Start an Embezzlement Scheme After Landing a New Job?

For Michelle Lynn Shelton, who is accused of taking $760k of her employer’s money, the answer is “NOT LONG!”

Detectives launched their investigation in December after another accountant, who was filling in while Shelton was away from work, discovered the apparent transfer of a large amount of money between two personal bank accounts, police said. Police said the company conducted an audit and contacted police. Shelton started working for the company in June 2007 and the evidence suggested she began diverting funds two months later, police said.

Green Mountain Coffee Roasters: Gosh, We Ended Up Having Way More Accounting Errors Than We Thought

Back in September, Vermont-based Green Mountain Coffee Roasters put the world on notice that the SEC was asking some questions about their revenue recognitions policies. Despite the SEC Q&A, analysts we’re cool with the company and the GAAP the crunchy accounting group was putting out.

Also at that time, the company disclosed that there were some immaterial accounting errors that were NBD. That was until they dropped a little 8-K on everyone last Friday!


Turns out, there was a whole mess of accounting booboos and the company will be restating “previously issued financial statements, including the quarterly data for fiscal years 2009 and 2010 and its selected financial data for the relevant periods.”

From the aforementioned 8-K with all the bad news:

The Company has discovered the following errors:

• A $7.6 million overstatement of pre-tax income, cumulative over the restated periods, due to the K-Cup inventory adjustment error previously reported in the Company’s Form 8-K filed on September 28, 2010. This error is the result of applying an incorrect standard cost to intercompany K-Cup inventory balances in consolidation. This error resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales. Rather than correcting the cumulative amount of the error in the quarter ended September 25, 2010, as disclosed in the September 28, 2010 Form 8-K, the effect of this error will be recorded in the applicable restated periods.

• A $1.4 million overstatement of pre-tax income, cumulative over the restated periods, due to the under-accrual of certain marketing and customer incentive program expenses. The Company also has corrected the classification of certain of these amounts as reductions to net sales instead of selling and operating expenses. These programs include, but are not limited to, brewer mark-down support and funds for promotional and marketing activities. Management has determined that miscommunication between the sales and accounting departments resulted in expenses for certain of these programs being recorded in the wrong fiscal periods.

• A $1.0 million overstatement of pre-tax income, cumulative over the restated periods, due to changes in the timing and classification of the Company’s historical revenue recognition of royalties from third party licensed roasters. Because royalties were recognized upon shipment of K-Cups by roasters pursuant to the terms and conditions of the licensing agreements with these roasters, Keurig historically recognized these royalties at the time Keurig purchased the K-Cups from the licensed roasters and classified this royalty in net sales. Management has determined to recognize this royalty as a reduction to the carrying cost of the related inventory. The gross margin benefit of the royalty will then be realized upon the ultimate sale of the product to a third party customer. Due to the Company’s completed and, when consummated, pending acquisitions of third party licensed roasters, these purchases and the associated royalties have become less of a factor, since the post-acquisition royalties from these wholly-owned roasters are not included in the Company’s consolidated financial statements.

• An $800,000 overstatement of pre-tax income, cumulative over the restated periods, due to applying an incorrect standard cost to intercompany brewer inventory balances in consolidation. This error was identified during the preparation of the fiscal year 2010 financial statements and resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales.

• A $700,000 understatement of pre-tax income for the Specialty Coffee business unit, due primarily to a failure to reverse an accrual related to certain customer incentive programs in the second fiscal quarter of 2010. The over-accrual was not identified and corrected until the fourth fiscal quarter of 2010.

• In addition to the errors described above, the Company also will include in the restated financial statements certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.

So naturally you shouldn’t rely on anything out there. Despite the discovery and disclosure of this massive fuckup and warnings from Sam Antar including some possible insider trading (it’s a theme today) and disclosure violations, an analyst at Bank of America Merrill Lynch thought it would be rad to upgrade the stock which has sent the price soaring. Why not, right?

In directly related news, anyone on the PwC audit team shouldn’t make any Thanksgiving plans.

Analysts Aren’t Concerned About SEC Probe of Vermont Hippies’ Revenue Recognition Policies

Somewhat related: It’s National Coffee Day. Does the SEC have no sense of timing?

Shares of Green Mountain Coffee Roasters Inc (GMCR.O) fell as much as 18 percent on Wednesday, a day after it said U.S. regulators made an inquiry into some of its revenue recognition practices and its relationship with a vendor, which analysts said was M.Block & Sons.

However, most analysts believe Green Mountain’s accounting policies are sound.

“We are comfortable with Green Mountain’s revenue recognition policy, the fact that it does not have control over M. Block & Sons, unquestioned management integrity and strong auditors (PricewaterhouseCoopers),” Janney Montgomery Scott analyst Mitchell Pinheiro said.

At least this analyst knows the name of the auditors. We’re looking straight you, Dick Bové.

Green Mountain roasted on SEC probe; analysts unfazed [Reuters]