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The bank also reassigns its controller after an audit committee investigation uncovers critical errors in the bank's accounting for bad loans, and internal control problems.
Stephen Taub, CFO.com | US
November 11, 2004
Officials at SunTrust Banks Inc. fired three finance executives and reassigned the company controller after concluding that there were “numerous errors” in the loan loss-allowance calculations for the first two quarters.
Executives at the banking giant said the company would also restate earnings upward by over $31.6 million for the first two quarters. They also said the company would report third quarter results on Friday, one month later than originally planned.
SunTrust is discharging Sandra Jansky, the chief credit officer, and two other executives in the bank's credit-administration unit, according to Reuters, citing spokesman Barry Koling, who declined to name the other executives.
The fired executives failed to treat accounting problems raised by the company's independent auditor, PricewaterhouseCoopers LLP with adequate seriousness, failed to correct errors, and didn't advise the auditors of the errors, according to a SunTrust statement.
Further, members of the company's credit-administration division provided PwC with false draft minutes of an Allowance Committee meeting, according to the company.
Controller Jorge Arrieta will be reassigned to a position in the company with responsibilities that involve areas other than accounting or financial reporting, company officials noted.
"There's no way I'm going to downplay the seriousness of what is taking place," chief executive officer Phillip Humann said on a conference call with analysts and investors, according to Bloomberg. “The finding that certain SunTrust executives didn't act properly in their interactions with our outside auditors, and . . . [the] case of falsified minutes of a loan-loss committee meeting is particularly unsettling.”
The wire service said Jansky, 54, could not be reached for comment. Jansky joined SunTrust in 1981 and was chair of the banking industry's Risk Management Association in 2002.
The actions taken yesterday was the result of an audit committee investigation that revealed errors found in the input data used to calculate the first and second quarter allowances related to the bank's indirect-auto-loan portfolio. The probe also examined communications between SunTrust personnel and PwC about the errors, as well as the loan-loss-reserve issues and related matters.
Officials at SunTrust, the nation’s eighth largest bank, noted that there is a "material weakness" in its internal controls for setting up loan-loss set-asides that has yet to be fixed.
They also confirmed that the financial staff is working on a thorough review of internal controls as part of the company's preparation for compliance with Section 404 of the Sarbanes-Oxley Act. However, given the efforts needed to completely remediate the internal-control problems associated with the bad loans, “the company likely will not be able to fully remediate these deficiencies by Dec. 31.”
As a result, management will not be able to conclude that the company's internal control over financial reporting was effective. Section 404 requires companies to document and audit internal control processes and to disclose whether the controls are effective.
The audit committee maintained that when PwC’s concerns came to the attention of senior management -- specifically Humann and CFO John Spiegel -- the matter was addressed promptly and appropriately.
Reuters pointed out that this the second time in six years that SunTrust was forced to restate its earnings to fix its accounting for bad loans. In 1998, it restated three years of profits upward by $61 million as it reduced loan loss reserves by $100 million after talks with the Securities and Exchange Commission, the wire service reported.