cfo.com

Print this article | Return to Article | Return to CFO.com

Beazer Says Ex-CAO May Have Violated GAAP

An internal probe points a finger at the executive who allowed the homebuilder to book reserves and other accrued liabilities in the wrong period.
Stephen Taub, CFO.com | US
August 13, 2007

More woes for Beazer Homes USA. The embattled homebuilder said that it will delay the filing of its June quarterly report based on the findings of an internal probe into its mortgage origination business. The investigation revealed that Beazer's former chief accounting officer, Michael T. Ran, may have been responsible for violating generally accepted accounting principles.

In a regulatory filing, the company said that Rand may have permitted reserves and other accrued liabilities to be booked in prior accounting periods, and therefore the company recorded total that were in excess of the amounts allowed by GAAP. The accounts were related to land development costs and costs to complete houses. The company also pointed out that if the accrued liabilities were reversed, and recorded in subsequent periods, the charges could have reduced the company's operating expenses.

In late June, CFO.com reported that Beazer fired Rand for violating the company's ethics policy by trying to destroy documents which were covered by the company's document retention policy. At that time, The Wall Street Journal reported that the Federal Bureau of Investigation and the Department of Housing and Urban Development were examining whether Beazer violated federal regulations in arranging government-insured mortgage loans.

In its recent regulatory filing, Beazer said its internal probe is ongoing and the company is not currently able to predict or determine whether it will need to adjust previously issued financial statements or whether the release of any portion of these reserves or accrued liabilities will have any impact on the company's financial results for the quarterly period ended June 30. Beazer did add that it does not believe that the amounts in question "are quantitatively material."

In addition, the company said it does not believe that the resolution of these issues will result in an adjustment to its cash position. "The Audit Committee and its independent counsel are working expeditiously to resolve these issues as soon as practicable," Beazer added in the filing.

Rand joined Beazer in late 1996 as vice president, operational and accounting controls and was promoted to vice president, corporate controller in June of 1998. He was again promoted to senior vice president and corporate controller in October 2002. Prior to joining Beazer, Rand was with KPMG Peat Marwick from 1984 to 1996, at which time he served as a senior audit manager.

In February, Beazer fired executive vice president and general counsel Kenneth J. Gary "for cause," citing "a pattern of personal conduct which includes violations of company policies." Then in March, James O'Leary resigned as executive vice president and chief financial officer to become president and chief executive officer of Kaydon Corp., where he has been a member of the board since 2005.

Meanwhile, in May, Beazer disclosed that the Securities and Exchange Commission had launched an informal inquiry to determine whether any person or entity related to the company has violated federal securities laws. CFO.com previously reported that Beazer also is the subject of a new class-action lawsuit filed on behalf of present and former participants and beneficiaries of the company's 401(k) plan. The lawsuit names as defendants Beazer Homes, as well as current and former officers and directors, and the plan's benefits-administration committee.

The complaint, filed in U.S. District Court for the Northern District of Georgia, alleges breach of fiduciary duties under the Employee Retirement Income Security Act. The suit focuses on investments made by the plan in Beazer stock when participants allegedly were not provided timely, accurate, and complete information about the company.

Finally, earlier this month rumors that Beazer was about to file for bankruptcy sent shares of the homebuilder tumbling as much as 40 percent. However, the company quickly fired off a press release debunking the report, asserting in strident tones: "We do not know where these scurrilous and unfounded rumors started. For an accurate representation of the company's financial position, including the company's liquidity and near-term prospects, we encourage investors to refer to the company's recently released third quarter earnings release and the script of our conference call with analysts and investors."




CFO Publishing Corporation 2009. All rights reserved.