Accounting & Tax

CFO Calls It Quits after Accounting Probe

Inventory errors at VeriFone trigger a restatement and a resignation.
Stephen TaubApril 2, 2008

The CFO of VeriFone Holdings has resigned after an audit committee investigation into inventory accounting errors that forced the company to announce it would restate results for prior periods.

Barry Zwarenstein’s resignation will be effective upon completion of the restatement and the filing of VeriFone’ quarterly reports and annual report, said the company, which is searching for a new CFO.

The payments processing equipment maker also said it will implement remedial measures for apparent breakdowns in the finance department.

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And the company said the Securities and Exchange Commission has requested documents and plans to interview several current and former VeriFone officers and employees.

“The completion of the Audit Committee investigation marks an important milestone in our efforts to restore our investors’ confidence in VeriFone,” said CEO Douglas Bergeron.

In its announcement on Wednesday, the company said it discovered additional errors since its December announcement that it would restate results for the first three quarters of its 2007 fiscal year.

The total decrease in operating income for the nine months ended July 31, 2007 now works out to $36.9 million, $7.2 million more than originally estimated. Also being reduced are previously reported inventories.

The internal investigation confirmed that incorrect manual journal and elimination entries were made for inventory-related matters, that existing policies for manual journal entries were not followed, and that insufficient review processes and controls were in place to identify and correct the errors in a timely manner. In short, the company conceded that it did not have effective internal control over financial reporting.

As for the remdial measures, VeriFone has fired its supply-chain controller and promises to boost inventory supervision. It also will increase accounting and finance staff and further segregate duties between the financial planning and the accounting and control functions. And the company plans to implement enhanced information technology/enterprise resource planning systems to handle the increased size and complexity of VeriFone’s businesses.

The company is also separating the roles of chairman and CEO. Charles Rinehart, who has been an independent director of VeriFone since May 2006, has been elected non-executive chairman. He was chairman and CEO of H.F. Ahmanson & Co. before its acquisition by Washington Mutual.

“The separation of the chairman and CEO roles and Charlie’s willingness to accept the chairman’s responsibilities will enable me to focus all my efforts on improving VeriFone’s operating performance, ensuring that the necessary control improvements are implemented and positioning the business for the months and years ahead,” said Bergeron.