Thursday, October 27, 2005
Bausch & Lomb Inc. disclosed that an accounting fraud problem in its Brazilian subsidiary may require the company to postpone filing its quarterly financial report due to problems with its books and records. The company issued a press release that the general manager and others in its BLIO subsidiary tried to hide pension compensation by falsifying entries in the company's records, and the Brazilian government is seeking to assess a penalty on the company. A company press release (here) states:
In September of 2005, the Audit Committee of the Board of Directors commenced an independent investigation into allegations of misconduct by the management of BLIO, which had been reported to the Company's senior management by a BLIO employee pursuant to the Company's established compliance program. The Audit Committee has engaged the law firm of Cahill Gordon & Reindel LLP to assist with the investigation. Bausch & Lomb also voluntarily reported these matters to the staff of the Northeast Regional Office of the Securities and Exchange Commission, which has commenced an informal inquiry into the matter.
The Audit Committee's independent investigation to date has determined that the general manager, the controller and other employees of BLIO, in violation of Company policies, engaged in improper management and accounting practices, including, among other things, the mischaracterization of approximately $600,000 in expenses to fund an approximately $1.5 million, unauthorized local pension arrangement for the benefit of themselves and other members of local management, the avoidance of Brazilian payroll tax obligations, the amount of which has not yet been determined, and the misuse of Company assets for personal benefit.
Also as a result of the Audit Committee's investigation, it was learned that certain Brazilian tax authorities have made tax assessments relating to or arising from Brazilian VAT, social contribution, income and certain import-related taxes against BLIO for unpaid taxes totaling approximately $5 million, interest of approximately $7 million, plus approximately $21 million in claimed penalties which relate back to various earlier periods. Appropriate reserves relating to these assessments were not reflected by BLIO in its subsidiary financial statements, as required by the Company's established policies and procedures.
The Brazilian subsidiary accounts for less than 1% of Bausch & Lomb's annual sales, but even a small problem can turn into a serious accounting and reporting issue, and no one wants to mess around with that.(ph)