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Published by Harshal Saigal

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Published by: Harshal Saigal on Mar 15, 2012
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SARVESH [Pick the date



Nicor restated results to reflect proper accounting in the first half of this year Our focus now is to stabilize this venture and put some certainty to its financial results. . The company is evaluating its continued involvement in this venture.Introduction : When Scandal Went Public Allegations Latest Developments Company Comment July 2002 Independent audit uncovered accounting problems that boosted revenue and underestimated expenses.

About the industry : Type Public (NYSE: GAS) Industry Gas utilities Founded 1953 Headquarters Naperville. & President Revenue $3. USA Key people Russ M. CEO.374 billion USD (2007) Operating income $207 million USD (2007) Net income $135 million USD (2007) Employees 3. Strobel. Illinois.900 (2007) Website www. Chairman.nicor.com .

Consumer Services Warranty and Protection Business to Business Nicor Advanced Energy Offers energy plans to manage natural gas bills. Nicor has 32. Eastern Caribbean and the Guianas. Virgin Islands. Founded in 1954. Inc.000 km) of pipelines.000 miles (51. Tropical Shipping is one of the largest containerized cargo carriers in the Caribbean region and the Bahamas. Florida. Nicor Gas. The company serves ports in the Bahamas. Nicor Enerchange Helps Commercial and Industrial companies manage their natural gas needs. insulation and other in-home services. (NYSE: GAS) is an energy and shipping company headquartered in Naperville. Nicor Home Solutions Conveniently protect your biggest investment – your home . Its largest subsidiary. Chicago Hub Services Offers customers alternatives in natural gas transportation and storage. Nicor's next largest subsidiary is Tropical Shipping. Cayman Islands. the company serves more than two million customers in a service territory that encompasses most of the northern third of Illinois. Nicor Solutions Offers levelized billing plans to help manage your natural gas bills. excluding the city of Chicago. Nicor National Provides attractive energy efficiency and warranty solutions to utility partners and their customers.from expensive repairs. Headquartered at the Port of Palm Beach. Tropical Shipping operates a fleet of 11 owned vessels and also charters a number of vessels to provide flexibility as market conditions change. is a natural gas distribution company. Dominican Republic.AGL Resources announced its acquisition of Nicor in December 2010. Commercial and Industrial .Nicor. Nicor Home Services Offers HVAC. Illinois.

Shipping Tropical Shipping One of the largest containerized cargo carriers in the Bahamas and Caribbean region. .

the former officers engaged in or approved improper transactions. They also failed to disclose material information regarding Nicor's rigged reductions in gas inventory levels that enabled it . Fisher." The complaint alleges that in 1999. None Nicor restated results to reflect proper accounting in the first half of this year. on Aug. and misrepresented Nicor's gas inventory in order to meet earnings targets and increase the company's revenues under a performance-based utility rate plan. first-out (LIFO) layers of gas inventory. and made material misrepresentations in financial statements and documents filed with the Commission. Linda Thomsen. Independent audit uncovered accounting problems that boosted revenue and underestimated expenses. 2007 .What went wrong ? A joint venture between Nicor July 2002. added. This case. Our focus now is to stabilize this venture and put some certainty to its financial results. The company is evaluating its continued involvement in this venture. a major Chicago-area natural gas distributor. As a result. former CFO and Executive Vice-President Kathleen Halloran. 9. like others." Merri Jo Gillette. Director of the Commission's Division of Enforcement. alleging financial fraud lasting from 1999 to 2002. shows that the Commission will not tolerate accounting ploys and misleading disclosures by senior officers who are intent on making their numbers. said.The Securities and Exchange Commission announced the filing of a civil injunctive action against former senior officials of Nicor. CEO and President Thomas Fisher. Halloran and Behrens engaged in a scheme to manipulate Nicor's earnings through fraudulent transactions and mislead investors by making improper disclosures regarding Nicor's financial performance. "Fisher.. and former Treasurer and VicePresident George Behrens engaged in or approved improper transactions. Inc. "This action against three senior officers of Nicor demonstrates the Commission's continued commitment to holding individual decision makers accountable for their conduct when it results in fraudulent financial statements. Halloran and Behrens participated in devising a method by which Nicor could profit by accessing its low-cost last-in. Director of the Commission's Chicago Regional Office. The SEC's complaint alleges that former Chairman.

disgorgement. . they caused the losses on the supply agreement with the insurance provider to be improperly charged to Nicor's utility customers. Additionally. Nicor consented to the entry of a court order enjoining it from violating the antifraud and reporting provisions of the federal securities laws and ordering that it pay a $10 million civil penalty (LR-20060). or in financial statements filed with those reports. Halloran and Behrens. that it had recorded material increases to income resulting from the liquidation of its LIFO inventory. These improper transactions enabled Nicor to understate its expenses and to manipulate its earnings to achieve its earnings targets. In addition. and officer and director bars against Fisher. The Commission's action seeks injunctive relief. 2007. On March 29. Moreover. and for each of the quarters within those years and the financial statements filed with those reports. civil penalties. As a result of the manipulative scheme. the former officers failed to make disclosures required by GAAP about the effects of LIFO inventory liquidations on Nicor's reported income. Halloran and Behrens. Nicor. and that the continued liquidation of Nicor's low-cost inventory was not sustainable. the former officers materially understated Nicor's expenses during the first and second quarters of 2001 by improperly bundling a weather-insurance contract with an agreement to supply gas to Nicor's insurance provider at below-market prices. Nicor materially overstated its reported income for the years ending 2000 and 2001.to improperly manipulate its earnings and to increase Nicor's revenues under a performance-based utility rate plan. failed to disclose in either the Management's Discussion & Analysis section of its 2000 and 2001 annual and quarterly reports. through Fisher.

As a result of the Lassar investigation. The ICC has postponed further action in the case while it considers CUB's request. allowed the company to split savings it made on gas purchases with consumers. the company used accounting techniques to tap into an inventory of cheaper gas. attorney's office since a whistleblower last year alleged that the company had engaged in fraudulent accounting in its unique natural gas purchase plan..S. the gas had been on its books from the 1950s.Implications : Nicor Gas has refused to provide evidence to back up an independent report that cleared the utility of fraud. The report by former U. The plan. In a filing with the Illinois Commerce Commission. the Citizens Utility Board alleged on Monday.S. has been under investigation by the Securities and Exchange Commission and the U. Atty. a unit of Naperville-based Nicor Inc. instead they are playing hide-the-ball. which also suggested that. "Given the alleged improprieties regarding a public utility. the company was forced to correct the "improper" way it accounted for the gas purchases. the advocacy group asked the agency to force Nicor to answer questions about the report. Scott Lassar. . Purchased for 3 cents a therm. The gas company. consumers still may end up owing the company money. Instead of using sophisticated financial instruments to hedge gas. they should be bending over backwards to cooperate. designed to stimulate Nicor to buy the cheapest gas possible for consumers. for which the company earned a $27 million profit. concluded that Nicor had not committed fraud in connection with its performance-based rate plan." said Robert Kelter. CUB's director of litigation. filed with the SEC in October. despite numerous "improper" accounting methods used by the company.

" the report said. who is a witness in the case. which largely were rebuffed by Nicor attorneys. For other errors. the company's attorneys argued that they had already answered the questions. CUB fired off a series of questions concerning Lassar's conclusions. 3 cent-per-therm older inventory and instead used far more expensive gas. Lassar's report raised the possibility that consumers might owe Nicor money for the accounting reversal. Nicor serves more than 2 million natural gas customers in the northern third of Illinois. "Correcting the accounting for this means that ratepayers would have been undercharged for actual costs. Robert Kelter. "Nicor served us with thousands of pages of documents that are not identified in any way. the company said it would refund roughly $15 million. In other cases." Kelter said. can't be forthcoming because of attorney-client privilege. CUB's director of litigation. that don't allow us to figure out how Lassar reached the conclusions in that report. "They are hiding behind attorney-client privilege when Lassar was supposed to be an objective investigator making the report. not providing legal counsel to the company. said. they argued that Lassar. In some cases.Under the revised accounting scenario. Nicor didn't tap the cheaper. . including other accounting and meter reading errors. or about $7 for an average residential customer.

securing physical assets. inventory counts.using audits. . and the accounting system. access to data. Also company should conduct Comprehensive Fraud Prevention Program which includes:    Fraud education: Teaching employees about fraud risks Fraud investigation: Investigating instances of suspected fraud Fraud prevention: Evaluating. or other procedures to verify compliance with policies and procedures. designing.monitoring access to assets. and implementing controls that proactively prevent fraud. and money Segregation of duties .dividing activities so one employee doesn't have too much control over an area or duty Proper authorization of transactions . data. surprise check-ups. as wel Monitoring activities .Recommendations: To avoid the fraud company should take the following measures:      Safeguards over assets .ensuring that employees aren't exceeding their authority Independent checks on performance .

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