Take-Two Interactive Software, developer of the Grand Theft Auto series has been implicated in an accounting fraud that has seen a partner company settle against charges laid by the SEC.
CFO.com: SEC Issues 'Video Game Parking' Ticket
CFO.com: SEC Issues 'Video Game Parking' Ticket
According to the commission, Take-Two — best-known for the ''Grand Theft Auto'' series of video games — shipped hundreds of thousands of games to Capitol, typically at the end of reporting periods. Take-Two then fraudulently recorded those shipments as sales when, in actuality, Capitol only "parked" the games temporarily and did not intend to sell them.
The SEC complaint also charged that Take-Two twice provided funds to Capitol or another entity owned by Terry Phillips, known as Phillips Land Co. Allegedly, the funds were then sent on to Take-Two to create the false appearance that Capitol or Phillips Land Co. was paying for the games. The commission also alleged that in two instances, Capitol returned games to Take-Two under invoices falsely describing them as "purchases" of "assorted product."
The scheme enabled Take-Two to report about $15 million in phantom revenue from four separate parking transactions with Capitol, according to the regulator.
The SEC complaint also charged that Take-Two twice provided funds to Capitol or another entity owned by Terry Phillips, known as Phillips Land Co. Allegedly, the funds were then sent on to Take-Two to create the false appearance that Capitol or Phillips Land Co. was paying for the games. The commission also alleged that in two instances, Capitol returned games to Take-Two under invoices falsely describing them as "purchases" of "assorted product."
The scheme enabled Take-Two to report about $15 million in phantom revenue from four separate parking transactions with Capitol, according to the regulator.
This is the oldest, and lamest revenue boosting scheme out there. As a veteran sales manager, I am intimately familiar with the variation known as "buy and return." You would need a couple of football stadia to house all the salesmen who've been fired for this, and I've terminated my share of them.
Better yet, this is one of the most transparent and easy to spot schemes if you and your back office are even remotely competent at sales audit procedures. In one instance I know of, a general manager at a big box chain store rang up a large invoice under his wife's name to win a sales contest, and had his wife return the goods at a different store once the contest had ended. His desire to win cost him a comfortable six-figure job, and his reputation is still dogged to this day.
Personally, I think a $50K fine and a cease-and-desist agreement is a miscarriage of justice in the face of a $15 million rip-off.
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1 comment:
Here's a simple new law I'd like to suggest - whatever the bogus amount of revenue was reported to be - let that be the fine that must be paid when the company is convicted. That ought to make the CFO's blood drain from his face in a hurry.
Don't do the lyin' if you can't pay the fine!
'Nuff said!
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