The Hindu Business Line : Cracks in the roof over shelters

WHEN a Big Four firm gets into trouble, it makes big news. Thus, when Federal prosecutors in Manhattan began "a criminal investigation into Ernst & Young LLP's promotion of tax shelters", AccountingWeb duly reports the same. "It is less than a year since the firm reached a civil settlement with the Internal Revenue Service (IRS) over past shelter work," it notes. The firm, however, is "cooperating fully" with the investigation, though its clients should already be losing sleep over all their details going over to the law enforcers. Already, a separate probe is on with KPMG for similar reasons.

If you remember, the year-old IRS settlement that E&Y reached was "to resolve allegations that it failed to comply with rules requiring that tax-shelter promoters register certain tax strategies with the government and maintain lists of investors who participate in them." Penalty was $15 million. E&Y did not admit wrongdoing. However, "E&Y disbanded the division that had been involved in developing and marketing its most aggressive tax shelters."

Criminal tax investigations are lengthy, and probes often do not result in criminal charges, notes AccountingWeb. Well, law is the same everywhere.

What sickens the bosses

THERE is better healthcare and we generally take more precautions to stay fit. Yet rate of absence at workplace in the UK has shot up, according to a recent survey by CBI and AXA Insurance, reported in AccountingWeb. In 2003, absences reached menacing proportions by adding "an extra ten million days to a problem that cost business £11.6 billion". Of the over 500 firms surveyed, a big chunk of 75 per cent "suspect employees of taking unwarranted long-weekends by calling-in sick on Fridays or Mondays". Giving benefit of the doubt to their employees, many firms reason that absence in many cases may be due to "genuine minor sickness" but their businesses are groaning under "a serious and expensive concern that is on the increase". One reason cited is that of downsizing leading to fewer employees taking a bigger load and therefore coming under greater pressure that affects morale, and hence the absence.

Supermarkets are trying to counter by announcing "moves to end sick pay for sick leave of three days or less" and it is anticipated that there would be more absences caused by the Euro 2004 football tournament. Perhaps, bosses may begin to insist that their employees show themselves before their home PC's camera with a thermometer in their mouth.

Going after avoidance

SOX was about elected representatives training their guns at the corporate world. Something similar is brewing in the UK. "A group of more than 30 MPs from different parties" are calling for a government investigation into corporate tax avoidance, reports AccountingWeb. Aim is "to draw public attention to the activities of accountants and advisers who promote aggressive tax avoidance schemes". The proposal argues that such schemes have no commercial substance and are created for the sole purpose of avoiding UK taxes on income and profits. Evasions enable wealthy and corporate clients "to avoid taxes and national insurance contributions by transfer pricing, artificial loans, inflated management charges, special purpose vehicles, joint ventures, fictitious assets, offshore schemes and secretive trusts." The new government in India may also find active MPs in the House asking for more concrete measures against tax evasion.

Hard work in the board

DIRECTORS on the board have a cushy life, because they have to show up for occasional meetings and collect fat honorariums from their buddy, the CEO. A popular thinking, but it may be flawed. Because they are working harder than ever! "Today's boards of directors are under the microscope in the wake of the devastating corporate scandals of recent years, which found many a board asleep at the wheel while management ran the company into the ground," writes AccountingWeb. "New legislation puts more responsibility on corporate boards to take seriously their responsibilities to shareholders by filling their ranks with people qualified to be there — and people who plan to show up to do the job. This increased scrutiny and beefed up responsibilities are causing some boards to have trouble getting people to serve." At this rate, it may be the boss who goes home the last.

Webbed tricks on taxpayers

SCAMS come in all shapes and sizes. A recent one is what targets taxpayers. And what does it do? It tricks taxpayers into revealing "personal information such as Social Security numbers, bank and credit card numbers and passwords, and driver license information. AccountingWeb reports of a warning issued by the California Society of Enrolled Agents, the US Department of the Treasury and the Internal Revenue Service to the public.

"Typically, the scheme advises potential victims that they are under investigation for tax fraud and liable for prosecution. The e-mail directs the recipients to an official-looking Web site that instructs the unwary to enter detailed personal financial information to dispute the charges." Already, many would have fallen victims to the rip-off for fear of prosecution. "With this information, criminals can empty bank and credit card accounts electronically, and even apply for new loans and credit cards in the victims' names." Thieves on the Web!

Hikes for the honchos

THERE is all that clamour for reduction of fat cat pay for the honchos, but a a recent survey has found that total remuneration awarded to UK bosses climbed 22 per cent a year. "Chief executive remuneration pay rose by a staggering 168 per cent from 1998 to 2003," notes Independent Remuneration Solutions. The report in AccountingWeb observes that average remuneration, excluding pension, for leading chief executives last year was £2.6 million. "These findings are based on data contained in the 2003 annual reports of 800 quoted companies, and include the value of options and share schemes, not just the total cash paid." Also, there is a growth of non-salary parts of the remuneration package. "Salaries now make up less than half of the total package for many companies and only one quarter for the average FTSE100 CEO." Heard the burps?

GlobeTrot@TheHindu.co.in

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