Rio Tinto and ex-CEO and ex-CFO face accounting fraud charges on $3.7 billion coal calamity

Rio Tinto Group’s calamitous $3.7 billion coal deal in Mozambique keeps coming back to haunt the world’s second-biggest miner, three years after it unloaded the mine.

U.S. authorities filed fraud charges against London-based Rio, former Chief Executive Officer Tom Albanese and ex-Chief Financial Officer Guy Elliott, claiming they inflated the value of the coal assets acquired in 2011. The unit was sold for $50 million in 2014 following impairments of about $2.9 billion in 2013 and $470 million a year later.

Rio concealed setbacks at the project and Albanese publicly reinforced a “false positive outlook” for the asset, according to a Securities and Exchange Commission complaint filed in federal court in New York. Executives told Albanese and Elliott by May 2012 that the Mozambique unit was likely worth negative $680 million, the SEC said.

“Rio Tinto intends to vigorously defend itself against these allegations,” the company said in an emailed statement on the SEC charges. Albanese, Rio’s CEO between 2007 and 2013, said in a separate statement that “there is no truth in any of these charges.” Elliott, who retired in 2013, also refuted the allegations in a statement issued on his behalf. He stood down as a non-executive director of Royal Dutch Shell Plc, the company said Wednesday in a statement.

Rio has also agreed to pay a 27.4 million pound ($36 million) fine for a breach of disclosure rules concerning the Mozambique assets, the U.K. Financial Conduct Authority said in a separate statement. The Australian Securities and Investments Commission is also reviewing the issue, the company said.

There’s an onus on Chairman Jan du Plessis and the board to explain the issues around the SEC charges, Peter O’Connor, a Sydney-based analyst with Shaw and Partners Ltd., said in an email Wednesday.

Rio’s shares declined 2.3 percent by 3:30 p.m. in London, while rival BHP Billiton Ltd. fell 1 percent.

The charges come as Rio assists authorities in three countries over a separate case related to the $20 billion Simandou iron ore project in Guinea. Rio said in November it had alerted authorities including the U.S. Department of Justice and the U.K.’s Serious Fraud Office to a $10.5 million payment to an external consultant made in 2011.

Rio’s 2011 acquisition of Riversdale Mining Ltd., holder of the Mozambique assets, came as the producer sought access to coking coal in the Moatize basin at a time the African nation was seeking to become a major supplier of the steelmaking raw material.

The plans unraveled as the government refused to allow Rio to barge coal down the Zambezi and amid prohibitive costs of accessing or building rail lines to a port. Estimates of recoverable coking coal held by the assets were also downgraded, Rio said in 2013.

Rio, Albanese—who stepped down in August as CEO of Vedanta Resources Plc—and Elliott, “allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion dollar transaction was a failure,” Stephanie Avakian, co-director of the SEC’s enforcement division said Wednesday in the statement. Shell declined to comment on charges against Elliott.

Rio raised $5.5 billion from U.S. debt investors, including $3 billion after May 2012, the SEC said.

Concerns over the carrying value of the coal assets were raised in January 2013 by an executive in Rio’s Technology and Innovation Group, allegedly triggering an internal review, the SEC said in its statement. Shortly after, Rio announced Albanese’s departure and the major writedown, the SEC said.

The SEC charges that having already booked major writedowns following a takeover of Alcan Inc., Albanese and Elliott knew that disclosing a second failure would “call into question their ability to pursue the core of Rio Tinto’s business model to identify and develop long-term, low-cost, and highly-profitable mining assets,” according to the statement. Rio recorded more than $29 billion of charges after paying $38 billion in 2007 for aluminum producer Alcan, company filings show.

The U.K.’s FCA said Rio agreed to settle a breach of disclosure rules at an early stage and received a 30 percent reduction on its penalty. “The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto,” Rio said in a Wednesday filing.

Source: Accounting Today

IRS won’t accept returns next year without health coverage

The Internal Revenue Service said that for the upcoming 2018 filing season, it‎ will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act, the first tax season it has refused to accept such returns.‎

In an update Friday to the web page of its ACA Information Center for Tax Professionals, the IRS said will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. On top of that, the IRS said tax returns filed on paper that don’t address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.

In previous tax seasons the IRS has held up processing of tax returns that didn’t have the health care coverage box checked, but it didn’t prevent the returns from being processed. During this year’s tax season, President Trump signed an executive order directing agencies not to impose burdens from the Affordable Care Act pending repeal, so the IRS processed the returns, but still required taxpayers to pay a penalty known as an individual shared responsibility payment if they lacked coverage and didn’t receive an exemption.

“To avoid refund and processing delays when filing 2017 tax returns in 2018, taxpayers should indicate whether they and everyone on their return had coverage, qualified for an exemption from the coverage requirement or are making an individual shared responsibility payment,” the IRS advised. “This process reflects the requirements of the ACA and the IRS’s obligation to administer the health care law.”

The announcement comes after unsuccessful efforts this year by the Trump administration and Republicans in Congress to repeal the Affordable Care Act and replace it with a Republican health care plan as an alternative to Obamacare. Last week, President Trump announced he would end cost-sharing reduction payments, subsidies to health insurance companies to help provide coverage to low-income people. He also signed an executive order allowing consumers to buy coverage from so-called “association health plans,” which could be sold across state lines and wouldn’t need to meet the minimum coverage requirements or consumer protections of the Affordable Care Act.

However, with the Affordable Care Act largely still in place, the IRS said taxpayers remain obligated to follow the law and pay what they may owe when filing‎.

“The 2018 filing season will be the first time the IRS will not accept tax returns that omit this information,” said the IRS. “After a review of our process and discussions with the National Taxpayer Advocate, the IRS has determined identifying omissions and requiring taxpayers to provide health coverage information at the point of filing makes it easier for the taxpayer to successfully file a tax return and minimizes related refund delays.”

Source: Accounting Today

IRS puts Equifax contract on hold

The Internal Revenue Service has temporarily suspended its $7.25 million contract with Equifax after the company admitted to finding a malware link on its website on the heels of a data breach that exposed the personal information of approximately 146 million people in the U.S.

The IRS came under fire from members of Congress this month after the agency admitted it had signed a no-bid contract with the credit bureau to provide identity verification services for taxpayers despite recently suffering one of the biggest data breaches in history (see Lawmakers question IRS’s $7.25M no-bid contract with Equifax). A security researcher also found last week that a hacker had exploited a flaw on the company’s website to direct unsuspecting visitors to a link where they would download malware. Equifax took down the page, but the series of problems prompted the IRS to suspend its controversial contract with Equifax on Thursday.

“On October 12, the IRS notified us that they have issued a Stop-Work Order under our Transaction Support for Identity Management contract,” said a statement forwarded by an Equifax spokesperson. “We remain confident that we are the best party to perform the services required in this contract. We are engaging IRS officials to review the facts and clarify available options.”

The IRS said it was suspending the contract as “a precautionary step” in light of the new information.

“Following new information available, the IRS temporarily suspended its short-term contract with Equifax for identity proofing services,” said the IRS in a statement. “During this suspension, the IRS will continue its review of Equifax systems and security. The IRS emphasized that there is still no indication of any compromise of the limited IRS data shared under the contract. The contract suspension is being taken as a precautionary step as the IRS continues its review. Suspending the identity-proofing work provided under the contract means that the IRS will be temporarily unable to create new accounts for taxpayers using Secure Access, which supports applications including online accounts and transcripts. Although people can’t create new accounts, current Secure Access users aren't affected by this contract change and will continue to have access to their accounts. Other taxpayers still have options available for things such as obtaining transcripts, which can be ordered by mail. The IRS notes most of its services and tools are unaffected by this change.”

The IRS has awarded a new long-term contract to an Equifax competitor, Experian, for protecting taxpayers from identity theft. Equifax protested the IRS's decision to the Government Accountability Office, but the GAO ruled in favor of the IRS’s decision to award the new contract to Experian while continuing to review the suspended short-term contract with Equifax. The IRS praised the GAO’s decision.

“We’re looking forward to the start of the new contract,” the IRS said in a statement Monday. “We will move as quickly as we can, but it will take some time to begin service under the new contract. We are continuing to assess the time frame for the new service. In addition, we continue to review the status of our short-term contract with Equifax, which was temporarily suspended last week.”

Source: Accounting Today

Keeping up with technology in accounting

Both in specific practice areas and for firms as a whole, technology is automating and streamlining accountants’ work, even as the tools themselves grow more integrated and more useful, according to industry experts from the CPA Consultants’ Alliance.

In “CPA Firm Technology Trends,” one of the CPACA’s “Issues and Answers” video series, members of the alliance examine how new developments are impacting every aspect of the modern accounting firm.

Starting in tax, the panelists pointed up the importance of technologies that organize the work, rather than those that prepare or file returns.

“What it really comes down to is having an integrated workflow tool,” said Roman Kepczyk, director of consulting at Xcentric. “When we consult with firms, we find that there are long-time processes for tracking all aspects of the process, but these all seem to be in different applications. We need a way to have everything centralized in one place, so anyone who’s authorized to see it in the firm has easy access to that. Workflow tools are the solution. In smaller firms, that may be practice management projects, which are modules that allow them to track all those steps pretty cohesively. The problem is that, as you get much larger, the sheer volume of returns, makes those somewhat kludgy, so we see firms implement dedicated workflow solutions.”

“Having a workflow solution is a no-brainer in tomorrow’s CPA firm,” added Dustin Hostetler, chief innovation officer at Boomer Consulting. “You can’t properly manage a tax practice without having that integrated workflow solution to automate the movement of the tax work through the office. We’re finally there where we can have that paperless tax process from engagement acceptance all the way through to e-filing of the return, which not only benefits us but gives our clients a much friendlier client experience.”

For the other major components of the traditional accounting practice – accounting and auditing – the impact of technology is often felt more at the level of the grunt work that bookkeepers and auditors slog through.

“Automation is the big word here,” Hostetler said. “More and more, the A&A side of firms is becoming more and more automated. You’re seeing some of the artificial intelligence software coming into the market. Some of the Big Four have their own homegrown solutions to automate more of the workpapers and work you traditionally do during fieldwork.”

Citing the growing availability of such tools for auditors and accountants at firms of all sizes, he added, “That’s going to change the mindset of the audit practice from compliance to consultative. As automation and efficiency get driven into the audit practice, there’s going to be downward pressure on fees” – and firms will need to counter that by moving to more value-added advisory services.

Kepczyk noted two technology trends that are streamlining access to audit and accounting data: “One trend would be the centralization of data so that it’s run on servers, and rather than checking out binders and working out in the field, all the work is done on the servers. Not only can the field auditor access it, but maybe a manager in a different location or the manager in the office can look at those workpapers. The other benefit of having everything centralized on the services is that, from a security perspective, there’s no more data residing on the local workstation, so if a laptop happens to be lost or stolen, the risks of a security breach are significantly reduced.”

“The other thing we want firms to take a look at is that we’re seeing a trend towards going to a single audit suite for not only the engagement binder, but also for the workpaper programs,” he added. “Can we put all of our information in one place? … We’re seeing vendors put everything in one bucket to eliminate the lack of integration between products.”

Sarah Johnson Dobek, president of Inovautus Consulting, took up the theme of integration as one that’s being felt all across tech-savvy firms.

“One of the challenges that many firms have had over the years is that all of the software you use on the tax and audit side tends not to talk to each other,” she said. “That’s gotten much better over the years, but a lot of the information still resides in these disparate programs and there hasn’t always been a way to get that.”

Now, she explained, more and more software vendors are developing special tools that allow information to flow out of their applications more freely. “We’re seeing firms really focus on integration of software so the data is being provided to the marketing and business development professionals that are charged with growing the firm, so it’s getting into CRM systems, and they’re building special integrations to allow all the information to come together.”

All of this is actually being felt beyond firms themselves.

“The other impact we’re seeing of combined technology is that it’s helping enhance the client experience,” Dobek continued. “This is a huge focus for CPA firms right now, to really look at what is their client experience. Because of the move toward building a much more consultative practice, client experience has really risen to the top in this move away from compliance-only services. A lot of firms are starting to focus on how they can do this better, and technology is going to be a huge aid in being able to figure out some of those touchpoints – everything from notifying clients where something is in process, to how they use the portal, to how your staff engages with it.”

The video covers a number of other critical technology trends, including cloud adoption, remote work, and more; it and the other three videos in the CPA CA “Issues and Answers” series are available on the alliance’s YouTube page.

Source: Accounting Today

Bill.com attracts investment from JPMorgan Chase

Bill.com has secured $100 million in funding from JPMorgan Chase and Temasek, among other lead investors from previous rounds. With funding from America’s largest bank, and a holding company owned by the government of Singapore, this latest round of financing demonstrates the burgeoning investor interest in financial technology companies.

This latest round of funding brings Bill.com’s total to $200 million, and the company now has an estimated private market valuation of $742.8 million, according to PitchBook, a private market research provider. This makes the paperless billings and payments software company among the top valued startups in Silicon Valley.

Bill.com reports that has more than 2.5 million members processing $50 billion in payments annually. Its self-reported customer tally is at approximately 100,000, and it partners with four major U.S. banks, more than 50 major accounting firms, and integrates with commonly used accounting software including Xero and QuickBooks. Bill.com is also the preferred digital payments provider for CPA.com, the technology arm of the American Institute of CPAs.

“The last chasm to cross in digital payments is business payments. Eighty percent of all payments made by U.S. businesses today involve paper checks, and it’s about time we change that,” said René Lacerte, CEO and founder of Bill.com. “Businesses deserve the same digital payment experience we have come to expect as consumers. With this capital, we will double down on our efforts to shift digital payments from early adoption to major, widespread market acceptance.”

Source: Accounting Today

Intuit is hiring tax experts

Intuit is hiring thousands of credentialed tax experts to prepare for the expansion of its TurboTax product for the upcoming tax season.

The software company will be expanding the do-it-yourself functionality for its tax preparation software. Part of this expansion is the availability of live tax experts to answer question from filers at any time of day.

CPAs, enrolled agents and even practicing attorneys are on the wanted list to create a virtual team of tax experts to connect directly with TurboTax users who would like their taxes reviewed or some guidance on completing their tax filings.

Those hired will be able to choose the times and hours they want to work, similar to how contract workers on the cab-hailing app Lyft or the hand-for-hire app TaskRabbit operate.

The Turbotax software routes the tax payer’s question to an expert. Then, using one-way video and screen sharing, the expert will show and explain answers.

To learn more or apply, click here.

Source: Accounting Today

Anti-Fraud Collaboration issues case study

The Anti-Fraud Collaboration between the Center for Audit Quality, Financial Executives International, the Institute of Internal Auditors and the National Association of Corporate Directors has released the fourth in a series of case studies highlighting ways to deter financial fraud.

The new case study focuses on LDC Cloud Systems, a fictitious global technology company whose board is dealing with bribery accusations and accounting shenanigans. The case study offers a timeline of management and board decisions after potential problems are uncovered. It demonstrates how complex accounting practices typical in a fast-changing business environment can make a company prone to fraud. The hypothetical scenario shows how fraud situations can develop and be addressed, such as through strong board oversight. For classroom use, the Anti-Fraud Collaboration has developed a video series to bring scenes from the case study to life. The videos are available at the Anti-Fraud Collaboration website.

“The Anti-Fraud Collaboration is pleased to present the latest case study in our series designed to raise awareness of financial reporting fraud,” said Center for Audit Quality executive director Cindy Fornelli in a statement. “These case studies have proven to be valuable educational tools for all members of the financial reporting supply chain, as well as students.”

The Anti-Fraud Collaboration’s case studies take participants through a hypothetical scenario about a fictional company dealing with fraud. Guided by an instructor, participants can then discuss what could have been done to address or avoid the situation. Each case study offers a companion discussion guide for instructors, available on request.

LDC Cloud Systems is the Collaboration’s fourth case study. Others include:

• Hollate Manufacturing focuses on the conditions that can lead to fraud and misrepresentation in financial reporting.

• Carolina Wilderness Outfitters aims to facilitate a discussion about how to perform an internal investigation when fraud is suspected in a company.

• Kendallville Bank focuses on the need for professional skepticism in the financial reporting process.

“New technologies can make for a disruptive business environment, and can create new challenges on existing business practices,” said FEI president and CEO Andrej Suskavcevic in a statement. “Resources like this case study provide a practical tool to help financial executives explore and deter financial reporting fraud.” 

Source: Accounting Today