Tech Data has finally been able to file its accounts for the year which ended twelve months ago. It is restating its numbers, resulting in a drop in consolidated operating income by an aggregate amount of approximately $30m to $40m, and consolidated net income by an aggregate amount of approximately $25m to $33m, over the three fiscal year period.
In addition to fiscal years 2011, 2012, and 2013, the restatement, described in detail in the Company's Annual Report, includes restated selected financial data for fiscal years 2009 and 2010. The cumulative effect of the restatement, excluding a Spanish VAT issue.
The total bill seems to be around $102m, $55.6m for Spanish VAT liabilities and $46m in terms of irregular accounting.
The company does not agree with how one of its Spanish subsidiaries was audited in relation to various value-added tax matters. As a result of those audits, the Spanish subsidiary received notices of assessment that allege the subsidiary did not properly collect and remit VAT. During the fourth quarter of fiscal year 2014, the Spanish National Appellate Court issued an opinion upholding the assessment for several of the assessed years. Although Tech Data believes the Spanish subsidiary's defense to the assessments has solid legal grounds, and is continuing to vigorously defend its position by appealing to the Spanish Supreme Court, the risk that the assessments will be upheld has significantly increased, hence the provision.
Based on management's assessment of the accounting issues identified in the investigation, as well as issues identified in the Supplemental Procedures, management identified the following material weaknesses in internal control over financial reporting: (i) inadequate control environment in the primary operating subsidiary in the UK and two other European subsidiaries; (ii) inadequate controls over manual journal entries in Europe and in two Latin American countries; (iii) inadequate account reconciliation procedures in Europe over certain aspects of vendor accounting; and (iv) inadequate anti-fraud program controls and monitoring.
TD is changing its accounting management in a number of ways, including training in Ethics and a Chief Ethics and Compliance Officer.
- Certain personnel responsible for accounting improprieties are no longer employed.
- The Audit Committee, Board of Directors and executives have increased communication to all employees regarding the ethical values of the company, requirement to comply with laws, the Code of Conduct and the company's accounting policies.
- It has engaged external experts to perform the internal audit function and to assist with the implementation of specific fraud detection procedures.
- The accounting organisation is adding resources to address standardization, training and competencies related to the use of accounting systems and to enhance all accounting personnel's understanding of accounting policy.
- TD is implementing changes to its compensation programs to better motivate accurate financial reporting and compliance.
- There will be changes in various processes, including: tools to document, support and review manual journal entries; new internal review and audit programs; and centralization of various control and finance processes.
- It is in the process of evaluating potential enhancements to the accounting and enterprise computer systems to improve systematic controls and account reconciliation processes.
- It will evaluate its organisational structure, and roles and responsibilities to enhance controls and compliance.
- It has appointed a Chief Ethics and Compliance Officer and intends to evaluate additional enhancements to its compliance structure and organization.