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Probe: Tyco Pushed Limits In Accounting

Internal Tyco Probe Finds Company Pushed Limits of Accounting Rules But Didn't Break Laws

Dec 31, 2002 | AP

Tyco International Inc. pushed the limits of accounting regulations to inflate earnings in recent years, according to an internal investigation into the embattled company's bookkeeping.

The report filed with the Securities and Exchange Commission on Monday said Tyco's accounting since 1999 has been within the law, if not always within generally accepted accounting practices.

"Aggressive accounting is not necessarily improper accounting," the report declared.

It said the money incorrectly accounted for last year was a small amount for a company with $36 billion in annual revenues, though the errors prompted an additional $382 million in charges for the fiscal year that ended Sept. 30. Tyco makes everything from telecommunications equipment to home alarm systems.

The company's accounting remains under review by the SEC, and several former top executives, including chief executive Dennis Kozlowski, face criminal charges of fraud and corruption.

Tyco launched its investigation after Kozlowski's abrupt resignation in June, one day before he was indicted on charges of evading New York sales tax on art purchases. The investigation was expanded in August to include accounting practices back to 1999.

In September, the company told the SEC it had found tens of millions of dollars in unauthorized payments to dozens of employees.

Also in September, Kozlowski, former chief financial officer Mark Swartz and former general counsel Mark Belnick were indicted on charges they improperly reaped millions from Tyco. All have pleaded innocent, and their lawyers have said any money they received was approved.

The internal investigation found Tyco managers were encouraged to make corporate acquisitions look better on paper.

One document cited in the report suggests Tyco could realize $72 million from "financial engineering" related to mergers in 1999 and $52 million in each of the next two years.

"Be careful!! I wouldn't want this to get out," reads a handwritten note on the presentation document cited in the report.

In its annual report, also released Monday, the company warned negative publicity hurt employee morale, its stock price, and customer relations. It said some suppliers now ask for letters of credit before shipping orders.

The report suggested corrective action, some already taken, including improving documentation of accounting decisions; requiring formal approval for charitable donations, employee compensation and employee loans; and centralizing control of employee relocations, travel and expenses.

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