The former CFO of Logitech International has been charged with inflating the computer accessories company’s operating income to conceal the poor sales of a television set-top device.

The U.S. Securities and Exchange Commission alleged Monday that Erik Bardman and Logitech’s former acting controller, Jennifer Wolf, failed to accurately account for the problems with Revue, a device to allow internet browsing and video streaming, causing a $30.7 million, or more than 27%, overstatement of operating income in fiscal 2011.

By the time of Logitech’s April 2011 earnings release, the SEC said in a civil complaint, Revue’s sales were 70% lower than internal projections and the company had lowered its forecast of operating income.

“Given the shortfall, senior management, including Bardman and Wolf, were under substantial pressure to meet the lowered guidance,” the complaint says.

On Tuesday, the SEC announced that Logitech had agreed to pay a $7.5 million fine to settle allegations of improper accounting involving the Revue product and two other areas during a five-year period. Two other executives — former controller Michael Doktorczyk and former director of accounting Sherralyn Bolles — agreed to pay penalties of $50,000 and $25,000, respectively.

Logitech failed “to write down the value of its inventory to avoid the financial consequences of disappointing sales,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a news release.

Bardman, 49, served as Logitech’s CFO from October 2009 to April 2013. The Revue product was launched in the third quarter of fiscal 2011 and, according to the SEC, Logitech had sold only about 165,000 units by the end of the fourth quarter, far short of its projection of 350,000 units.

Bardman and Wolf allegedly concealed the extent of the problems by improperly calculating Revue’s inventory valuation, misrepresenting to Logitech’s independent auditor that the company’s excess component parts would be used in production, and misrepresenting to the independent auditor the proper amount of Logitech’s writedown of finished goods inventory.

“For Logitech’s financial statements, the two executives falsely assumed the company would build all of the components into finished products despite their knowledge of contrary facts and events,” the SEC said.

, , , ,

6 responses to “Ex-Logitech CFO Accused of Accounting Fraud”

  1. “…misrepresenting to Logitech’s independent auditor that the company’s excess component parts would be used in production, and misrepresenting to the independent auditor the proper amount of Logitech’s writedown of finished goods inventory.”

    Not to minimize the alledge deception of the CFO and Controller, the Auditor deserves some blame as well.

    Did the un-named Auditor delve into the issues or just accept Management’s answers? What level of Auditor was at the company doing the leg-work and what information was sent to the senior members of the Audit firm?

    Ultimately, how independent was that Auditor?

    • It is very rare that auditors catch any sort of fraud. The point of an audit is not to find fraud but to make sure the company is compliant with GAAP. A forensic audit is when the audit is specifically looking for fraud. Usually fraud is only detected by independent auditors about 9 percent of the time.

  2. Ken,
    Not really. The point of an audit is to make sure the company’s financials are free of material misstatement, whether due to error *or fraud*. That involves considering fraud risks and designing audit procedures with those in mind. PwC partners tried the line you gave that detecting fraud isn’t part of their job and just got fined $625M for their negligent audit of Colonial Bank. The problem is most audits don’t cross every t and dot every i with respect to those auditing standards, and particularly with respect to fraud. For something like this, it’s tough for me to put blame on the auditor. If the company represents that the value in component parts inventory is recoverable, how could they know if it isn’t? That involves evaluations of future product offerings and the engineering feasibility of using those existing parts that is well outside an auditor’s purview. Though they should absolutely know to write down finished goods inventory.

Leave a Reply

Your email address will not be published. Required fields are marked *