SEC Opens Formal Invesitgation Into Diebold
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By Warren Stewart, VoteTrustUSA
August 10, 2006
Reuters is reporting that the U.S. Securities and Exchange Commission has begun a formal investigation into how Diebold recognizes revenue. In a public filing in May, Diebold has acknowledged that SEC staff had begun an informal inquiry but the company’s latest filing on July 27 reported that the investigation had been converted into a formal nonpublic investigation.
SEC investigations typically begin as informal inquiries. A formal inquiry is one in which the commission authorizes the staff to look at whether laws have been broken and carries the power to subpoena witnesses and documents.
Though both Diebold spokesman Mike Jacobsen and SEC spokesman John Nester declined to comment on the investigation, it was clear that the focus of the inquiry relates to Diebold's election division, Diebold Election Systems, Inc.
CantonRep.com offered more details:
The inquiry appears to focus on two incidents in which the company had to revise financial statements. Neither incident involved formal financial restatements because the errors were made in informal public reports, and not the company’s official SEC filings.
The first, in June 2005, came during the third quarter when Diebold shipped voting machines in Ohio and reported the revenue for those machines in the second quarter.
But the company didn’t ship the memory cards for the machines until July, so that revenue couldn’t be put on the books until the third quarter.
That caused the company to shift about $10 million in revenue and $1.3 in net income from the second to the third quarter.
The second incident involved $7 million in revenue that came from long-term service and product warranty contracts for a number of U.S. elections customers. The contracts were made in the fourth quarter of 2005, but the service won’t be provided until 2007 to 2010, so the revenue can’t be reported until those years.
The company warned analysts in January that it might have to move some election revenue from the previous quarter, and announced in March that the revenue will be recorded in future years.
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