Deloitte & Touche Cites ‘Weaknesses’ in Quitting IDB : Telecommunications: Accountants express concern over internal controls and procedures.
In its first formal explanation for resigning last month as auditors for IDB Communications Group, Deloitte & Touche said it found “weaknesses in internal controls and procedures” at the fast-growing Culver City telecommunications firm.
The response, contained in a letter to the Securities and Exchange Commission that was made public Tuesday, also shows that the accounting firm first expressed concerns over IDB’s results in early 1992. Deloitte said IDB had dramatically improved its procedures in late 1992 and 1993 but that those procedures “had again deteriorated in the first quarter of 1994.”
IDB’s stock plunged more than 50% to $7.125 two weeks ago after Deloitte announced it was quitting. The stock closed at $9.75 on Tuesday, up $1.625 in Nasdaq trading.
Chairman Jeffrey P. Sudikoff disputed Deloitte’s characterization of IDB’s financial controls as deteriorating, but he said the company is addressing the concerns. He attributed the dispute to the rapid growth of the company in acquiring disjointed businesses, noting that Deloitte did not suggest there was any fraud at IDB, as some investors had speculated.
“This is the biggest fizzle since ‘Ishtar,’ ” Sudikoff said, referring to the notorious Hollywood movie flop.
Sudikoff also criticized Deloitte for resigning “without so much as a phone call to me.” In its letter, Deloitte disputes IDB’s claim that its resignation was abrupt.
The letter, dated Monday, shows that the two sides butted heads frequently over IDB’s first-quarter results, with Deloitte repeatedly challenging millions of dollars in pretax income and IDB repeatedly presenting Deloitte with new, previously unrecorded items showing millions of dollars more in income.
In the end, Deloitte resigned in a dispute involving $5.4 million, or 4 cents a share, in IDB pretax income.
Deloitte gave three reasons for its resignation: the recording of revenue related to the sale of satellite transponder capacity, the lack of documentation related to some accounting adjustments, and the need for additional information related to IDB’s desire to set aside $2.9 million for problem accounts, because IDB had previously assured Deloitte its provision for problem accounts was adequate.
IDB, which has been sued by several shareholders in the wake of the stock plunge, is expected to hire a new auditor as early as Friday. The company assigned two outside directors to find one. One of the directors is Joseph M. Cohen, who recently joined with Sudikoff in buying a 72% stake in the Los Angeles Kings hockey team for $60 million from financially ailing sports mogul Bruce P. McNall.
