BBSI, the PEO known officially as Barrett Business Services Inc. (Nasdaq: BBSI), agreed to pay a $1.5 million fine to end a Securities and Exchange Commission investigation into its filing of false financial reports. The company earlier paid $12 Million to settle a class action suit. Some officers have been criminally charged and suspended by the SEC.
The false financial filings mislead the industry, regulators, and investors about BBSI’s workers’ comp costs and profitability. BBSI was 62% – $80 million – under reserved and had to borrow to cover those reserves.
The company’s former chief financial officer is facing federal criminal charges for the reports, and the SEC has suspended its former controller.
Several years’ worth of financial reports were false, and ultimately the company had to restate financial results for nearly five years. BBSI did not admit or deny any of the SEC’s charges, with included alleged violations of federal securities laws covering anti-fraud, books and records, internal accounting controls and financial reporting.
The SEC indictment alleges former CFO James Douglas Miller engaged in a scheme to hide BBSI’s rising workers’ comp costs by reporting them as payroll expenses. “By misclassifying expenses, Miller and BBSI were able to report workers’ compensation expenses that were in line with historical trends, when in fact BBSI’s workers’ compensation expenses were increasing as a percentage of revenue,” the SEC notes in its settlement order.
The SEC also alleges that Miller fudged the company’s recognition of some federal and state unemployment taxes. Cannon’s suspension and penalty were linked to his approval of these falsified journal entries.
Although BBSI CEO Michael Elich has not been charged, he had to return substantial bonuses from the years the accounting fraud took place. Former controller, Mark Cannon’s settlement, included a monetary fine and 1-year suspension.
“Even though BBSI had actually paid $3.8 million more in [federal and state unemployment tax expenses] for 2013 than it had recognized as expense, Miller decided not to expense the incremental amounts paid in light of the $5 million charges BBSI had already decided to make in connection with the workers’ compensation reserve, Miller wanted to avoid further scrutiny of the accounting department,” the SEC says. “Cannon approved Miller’s year-end 2013 journal entry when he knew, or should have known, that BBSI had actually paid more than it recorded in its books and records for unemployment taxes.”
Given the relationship between a CEO on the one hand and the CFO and Controller on the other, questions remain.
EDITORS NOTE: No person now or ever associated with or employed by Workers’ Comp Executive or any of its sister companies now owns or has ever owned or operated a PEO, any stock in BBSI or any other PEO.
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