The cost of time-off and disability programs continue to taken a bigger and bigger bite out of corporate budgets.

Time-off and disability program costs averaged 15 percent of payroll in 2001, up from 14.6 percent in 2000, according to the 2002 Survey of Employers’ Time-Off and Disability Programs by Mercer Human Resource Consulting and Marsh Inc.

Looked at a different way, an employee earning $40,000 annually is paid $6,000 for time away from work.

This cost translates into 39 days of absence per employee per year — 27 scheduled days and 12 unscheduled days. That’s up from 38 days of absence the previous year.

Unscheduled absences (including incidental absence/sick days, salary continuation, short- and long-term disability, and workers’ compensation costs) also rose to 4.7 percent of payroll in 2001, up from 4.4 percent in 2000 and 3.9 percent in 1999, according to the survey.

The survey included 723 U.S. employers with plans covering 6,158 employees, on average.

“Because the largest portion of the costs of time-off and disability programs are part of the payroll budget, historically they haven’t received as much attention as one might expect,” said George Faulkner, an absence management expert at Mercer. “Nonetheless, in an environment where employers are looking for ways to drive down costs, these expenditures are now subject to increased scrutiny.”

Earlier this month we pointed out that total employee benefit costs averaged 39 percent of total payroll costs in 2001, up from 37.5 percent the prior year, according to The U.S. Chamber of Commerce.

The new Marsh survey also found that workers’ compensation costs, on average, increased by 20 percent during 2001, rising to $1.80 per $100 of payroll from $1.50 a year earlier. This is especially ominous, since the findings do not fully reflect the sharp rise in insurance costs that began at the end of 2000 — a rise that was exacerbated by the Sept. 11, 2001, terrorist attacks, said Marsh.

“While employers of all sizes are taking action to manage their workers’ compensation costs, a surprisingly large percentage don’t allocate costs back to operating units, a proven way to rein in costs,” said William Craig, an absence management expert at Marsh.

Last week, reported on another Marsh survey — this one indicating that workers compensation protection accounts for 62 cents of every dollar U.S. industry spends to manage its casualty exposures.

In addition, that survey found that small employers pay 11 times more than the largest companies, while most companies, on average, shell out $2.45 for every $1,000 of revenues.

In the latest poll, 52 percent of respondents said they retain workers’ compensation costs at the corporate level, while 13 percent allocate these costs back to operating units based solely on exposure. Only 7 percent allocate costs according to loss history alone.

In addition, 17 percent allocate costs based on both exposure and loss history, and 11 percent use some other allocation method.

The survey also showed that during a two-year period, 26 percent of employers reported that their long-term disability incidence rates increased, while the rate decreased at 9 percent of the companies.

Short-term disability incidence rates increased for 33 percent of employers during the same period. Only 10 percent reported a decrease in incidence rates.

Interestingly, the survey found that disability costs (excluding those related to maternity) appear to be driven by four types of conditions: musculoskeletal problems, cancer, stress and depression, and cardiovascular diseases.

Disability conditions that most increased in cost or frequency include: Stress or depression (70 percent); cancer (60 percent); low back pain (57 percent); upper extremity repetitive trauma, such as carpal tunnel syndrome (55 percent); other musculoskeletal issues (52 percent); and respiratory conditions (37 percent).

Qwest Finance Executives Indicted

The Securities and Exchange Commission Tuesday filed civil fraud charges against eight current and former officers and employees of Qwest Communications International Inc. The commission alleges that the eight inflated the company’s revenues by about $144 million in 2000 and 2001 to help meet earnings projections and revenue expectations.

Three of the defendants are finance executives: William L. Eveleth, the current CFO of Qwest’s corporate planning and operational finance unit and senior vice president of finance; Grant Graham, the former chief financial officer of Qwest’s global business, and Bryan K. Treadway, the former assistant controller of the telco.

The commission’s lawsuit, filed in U.S. District Court in Denver, seeks anti-fraud injunctions, civil money penalties, disgorgement of illegally obtained gains (including salaries, bonuses, stock and other compensation) and, in several cases, permanent bars from service as an officer or a director of a public company.

The SEC’s complaint alleges that the defendants artificially accelerated Qwest’s recognition of revenue in two equipment sale transactions for the company’s global business markets unit. When Qwest and that unit determined that Qwest was falling short of its quarterly revenue targets and would not achieve the projected growth for the quarters ending June 30, 2001, and Sept. 30, 2000, the defendants allegedly bridged the revenue gap by fraudulently mischaracterizing the transactions.

“Accurate financial statements are the bedrock of our capital markets,” said new SEC Chairman William H. Donaldson, in a statement. “This agency will pursue aggressively anyone and everyone who has participated in an illegal effort to misrepresent a company’s financials and mislead the investing public.”

The SEC alleges that Graham and Treadway, along with several executives at the telco’s global business unit, planned and carried out an elaborate scheme to inflate revenues in connection with the sale of Internet equipment and service to the Arizona School Facilities Board (ASFB).

The scheme allegedly involved artificially separating the equipment sale from the installation services and wrongfully characterizing the sale as a bill-and-hold transaction under generally accepted accounting principles, said the SEC. The commission claims the plan also included accelerated delivery of equipment necessary for the two-year project and delivery of equipment that was not approved for the ASFB project.

“To support immediate recognition of revenue for sale of the equipment, the defendants prepared and furnished to their auditors false letter agreements for ASFB and a fraudulent internal memorandum,” the commission stated in its complaint.

As a result of the alleged fraudulent transaction, Qwest would have fallen short of its projected 12 to 13 percent revenue growth for the quarter ended June 30, 2001, it added.

The SEC also alleges that Eveleth, currently a senior vice president of finance at the telco, and Richard Weston, the former senior vice president in product development for Qwest’s internet solutions unit, along with two others, participated in a scheme in which Qwest artificially characterized one transaction with Genuity Inc., an Internet service provider, as two separate contracts.

In the first contract, the SEC says Qwest purported to sell equipment to Genuity at an improperly inflated price. In a second contract, the commission claims Qwest agreed to provide services to Genuity at a loss to Qwest, and reassumed all risk of loss and obsolescence on the equipment purportedly sold pursuant to the first contract.

As a result of the alleged fraudulent transaction, Qwest improperly recognized $100 million in revenue and claimed $80 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter ended Sept. 30, 2000, the SEC added.

The Commission said it is seeking orders against Graham, Treadway, and Weston permanently barring them from acting as a director or officer of a publicly held company.

SEC Upgrades Fleming Probe

Food distributor Fleming Cos. said it has been advised by the SEC that a previously announced informal inquiry has been elevated to a formal investigation.

The company said it will continue to cooperate fully with the SEC in its investigation and will continue to vigorously defend its interest in the litigation.

Fleming management also said that the audit and compliance committee of the company’s board of directors, after discussions with the company’s independent auditors, Deloitte & Touche LLP, has initiated an independent investigation to assist the SEC’s inquiry, as well as the board’s on-going review of certain allegations made in previously announced shareholder litigation.

Fleming’s audit and compliance committee has now retained PriceWaterhouseCoopers to assist in this matter, according to the company

In November, when Fleming first acknowledged the informal inquiry, the company’s management said the probe was related to media reports of Fleming’s vendor trade practices and its previously reported second-quarter 2001 earnings and 2002 earnings.

The commission is also reportedly looking into the distributor’s accounting for drop-ship sales transactions with an unaffiliated vendor in Fleming’s discontinued retail operations. Government regulators are also apparently looking into the company’s calculation of comparable store sales in its discontinued retail operations.

CT Communications Finds Accounting Errors

CT Communications Inc. said it identified accounting errors in estimating certain revenues and expenses in the course of preparing its financial statements for fiscal 2002.

Management at the telecommunications company said it determined that estimates for certain access revenues and network expenses, as well as several settlement processes with other telephone companies, were incorrect.

As a result, the company expects the restate earnings upward by $12,000 during the period spanning January 1, 2000 through September 30, 2002. The company also plans to restate retained earnings at January 1, 2000 to reflect an estimated cumulative reduction in after-tax net income of $227,000.

It also expects current assets to increase by about $2.5 million at Dec. 31, 2001, and by $2.53 million at Sept. 30, 2002.

The company also said current liabilities will likely increase by about $2.5 million at Dec. 31, 2001, and by $2.8 million at Sept. 30, 2002.

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