Cooked Books? Talent Guilds Audit Studios : Entertainment: Accountants are investigating whether producers have denied writers, actors and other artists millions of dollars in earnings.

Some have dubbed it “The Revenge of the Accountants.”

Even as columnist Art Buchwald challenges film-industry finance in one high-profile case, a trio of talent guilds has quietly launched the most massive audit ever in Hollywood.

The probe, expected to last as long as five years more, covers all the major movie studios and independent producers. Auditors had been promised unprecedented access to Hollywood’s closely held books. Based on findings thus far, sources predict that claims of tens of millions of dollars will ultimately be pressed.

Conducted by the Directors Guild of America, the Screen Actors Guild and the Writers Guild of America on behalf of their 90,000-plus members, the study should provide the most penetrating look to date at the industry’s controversial accounting practices.

While Hollywood’s method of determining net profits has been at the heart of disputes such as Buchwald’s, the new audit focuses on whether guild members have been paid their full share of revenue from such markets as video and overseas sales.

Producers deny any wrongdoing, but others predict that the audit will lead to significant reforms. “It’s safe to say that the current bookkeeping sucks,” said one auditor, speaking on the condition of anonymity.

The year-old study has already turned up “substantial errors” in favor of the talent, according to Warren Adler, Western regional director of the Directors Guild. So far, auditors have presented about $5 million in claims, though more than half are in arbitration.

The audit also seems to signal more headaches for Hollywood producers, who are suffering through one of the industry’s worst economic downturns in 20 years.

Nicholas Counter, president of the Alliance of Motion Picture and Television Producers, said producers stand by their accounting methods. He added that the organization does not expect to make big payouts.

“We have obligations to make payments as we’ve agreed to them, and those payments have been made,” Counter said. “Any error is inadvertent, or a difference of opinion.”

Residuals are the fees paid to actors, directors and writers when their work is used in ancillary markets, such as video, cable and foreign TV. Contracts require that they be paid to everyone from Oscar winners to the unnamed extra who has a cameo role in a film.

Members of the three guilds are supposed to receive a combined 6% of gross revenues from ancillaries, which have become increasingly lucrative in recent years. But the guilds have long suspected that their members may not be getting a fair shake.

“There’s been an explosion in the importance of ancillary markets in the past 10 years,” Adler said. “It’s in everyone’s interest for us to make sure that the system works.”

The audit has received limited public attention so far, especially compared to the press afforded Buchwald’s ongoing claim against Paramount Pictures.

A court upheld the columnist’s charge that the Paramount hit “Coming to America” was based on a treatment submitted by Buchwald and his partner, producer Alain Bernheim. The two subsequently challenged Paramount’s formula for determining the film’s net profit; a decision is pending in Los Angeles Superior Court.

The guilds initially were reluctant to discuss the audit, which does not address the net-profit issue. One guild spokesman insisted that no such study existed. People close to the discussions say the guilds and producers fear publicity will disrupt the process.

So far, auditors from several accounting firms have pored over the books of at least two studios and several independent companies, sources say. One of the firms involved in the audit is Kenneth Leventhal & Co. of Century City. Richard A. Sprayregen, the partner in charge of entertainment, confirmed Leventhal’s participation but would not discuss its findings.

Those accountants who agreed to discuss the audit anonymously said they have been greeted with less than open arms. One allegedly was forced to wait in a hall for two hours. Another was told that his appointment had been canceled because an executive’s son was in from college.

“It’s not like they’ve thrown open their doors,” said one accountant, seeking to dispel any notion that the auditors have spent their time schmoozing with celebrities at studio commissaries.

The auditors--after a crash course in motion-picture financing--are supposed to have access to records from movies and long-running television series dating back four years.

But bookkeeping, they say, is often disorganized. Documents at one studio were stored on four different computer systems, according to the auditors. In the increasingly international entertainment business, other studios literally have records scattered all over the world.

Examining the books of independent production companies is a special priority, the auditors say, because of the high mortality rate of those firms.

Oddly, it’s the studios and production companies that are picking up most of the tab for the audit. The Alliance of Motion Picture and Television Producers agreed to pay the bulk of the expense as one of its concessions during the most recent guild contract negotiations.

The alliance is paying $275,000 a year toward the audit, under the terms of the contracts. The three guilds each kick in an additional $33,000 annually.

The alliance’s Counter said the agreement was part of the “overall give and take” of contract negotiations. But he said the producers also welcomed the opportunity to demonstrate that their accounting system is fair.

“Our goal is to dispel the notion that the companies are not properly paying,” Counter said. “We’re prepared to step up to the plate and have ourselves audited.”

Counter denied that studios and independent producers have interfered with the auditors. Executives in their accounting departments have other obligations besides audits, Counter said. In addition, other people and companies also have the right to review those records.

“Besides these groups, people like Eddie Murphy and pension plans have audit rights,” Counter said. “It’s like a butcher shop. You have to take your ticket and wait in line.”

Counter said the alliance is satisfied with the results so far, though he conceded that there “has been some frustration on both sides.” He noted that the auditors have discovered some instances in which the studios and independent producers were owed money by other companies in the industry.

The tension between the two sides is likely to grow as the dollar figures in dispute rise, however. The funding for such a broad-based study was never available in the past, though the guilds had access to studio books. Major stars usually have auditing rights in their contracts.

Adler said the audit should finally provide a basis for ensuring fair compensation.

“There’s no question about the magnitude of the undertaking,” he said. “The idea is to build a system where the producers know they’re going to be audited and know guilds will look at books aggressively, so there’s no incentive for a production company to miss a payment.”

HOLLYWOOD ACCOUNTING FLAPS

Art Buchwald versus Paramount Pictures: Buchwald, a Pulitzer Prize-winning humor columnist, and his partner, producer Alain Bernheim, sued Paramount for $5 million in 1988, claiming the hit “Coming to America” was based on a treatment of theirs called “King for a Day.” The court sided with Buchwald and Bernheim, who subsequently challenged Paramount’s claim that it had not made a net profit on the picture. That phase of the case is still before the court.

James Garner versus MCA-Universal: Actor Garner sued MCA-Universal for $16.5 million, plus punitive damages, over his 37.5% share of net profits from the hit series, “The Rockford Files,” in 1981. Universal said the show had earned less than $1 million in profits, despite taking in more than $120 million from syndication, foreign markets and other areas. Garner claimed that the studio’s “shady” accounting procedures had cost him millions of dollars. In 1989, he reached a multi-million dollar out-of-court settlement.

Talent Guilds versus the Alliance of Motion Picture and Television Producers: As part of recent contract negotiations, the Directors Guild of America, the Screen Actors Guild and the Writers Guild of America won the right to audit the books of every major movie studio and independent production company to determine if proper residual payments have been made. The audit, Hollywood’s most ambitious ever, is expected to last as long as 5 years.