Former employee files with SEC claiming Disney is inflating Parks & Resorts revenue

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A former employee of The Walt Disney Company has filed multiple whistleblower tips with the Securities and Exchange Commission (SEC) against the entertainment giant.

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Sandra Kuba, a senior financial analyst for The Walt Disney Company’s revenue-operations department, was hired in 1999 and claims that the House of Mouse has been falsifying its revenue for years.

Whistleblower tips filed by Kuba with the SEC allege that employees who worked in the parks and resorts business operations maintained a pattern of overstating the company’s revenue, in total by billions of dollars. Kuba further alleges that employees did so by taking advantage of weaknesses in the company’s accounting software that made inflating revenue almost impossible to track.

Kuba says she has met with SEC officials on multiple occasions to discuss the allegations with the federal agency whose mission is to protect investors in the marketplace.

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But a spokesperson for The Walt Disney Company says the claims have been reviewed by the company and that they are ungrounded, describing the claims as “utterly without merit.”

The former employee’s filings with the SEC detail methods allegedly used by Disney’s employees to make revenue appear better than it actually was. She alleges that employees recorded bogus revenue for things like free guest promotions and that they recorded revenue for gift cards at their face value, even if guests paid a discounted rate for them. The filings also allege that employees recorded some gift card revenue twice–once when the cards were purchased and again when the same cards were redeemed for purchases. There are even allegations that gift card revenue was recorded even if the card was given to a guest at no charge for customer service reasons.

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The former financial analyst for Disney explains that flaws in the company’s accounting software made it easier for employees to record unearned revenue because the flaws also made cooking the books very difficult to trace, and that consequences resulting from the  flaws could be substantial–possibly to the tune of as much as $6 billion in the company’s 2008-09 fiscal year alone, during which the parks and resorts business segment of the company reported $10.6 billion in revenue to the SEC.

Kuba says she first shared her concerns with management 6 years ago in 2013 but no one responded to her. She says she then took the issue to a more senior executive at Disney in 2016, after which was contacted by the company’s corporate audit group in November 2016, but that nothing further happened after that point.

It would be several months before Kuba finally took her concerns to the SEC, and one month after doing so, in September of 2017, the former financial analyst says she was fired from The Walt Disney Company.

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In October 2017, she filed a whistleblower-retaliation complaint with the Department of Labor’s Occupational Safety and Health Administration (OSHA). But Disney responded to an inquiry from an OSHA investigator, stating that Kuba was fired because “she displayed a pattern of workplace complaints against co-workers without a reasonable basis for doing so, in a manner that was inappropriate, disruptive and in bad faith.”

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Since her termination, Kuba has made two more whistleblower filings–one as recent as June 2019. One of the most recent allegations Kuba brings against Disney suggests that some employees made attempts to reduce the company’s tax liabilities in the states of Florida, Hawaii, and California by reclassifying guest revenue items with a higher sales tax, such as hotel rooms to items with lower tax rates, such as food and beverages.

The representative for Disney dismissed the claims, saying they were reviewed at length by Disney, but determined to be ungrounded. The spokesperson says that Kuba retracted the claim she had initially filed with the Department of Labor that challenged her termination.

“We’re not going to dignify unsubstantiated assertions with further comment,” the Disney representative said.

Kuba admits to withdrawing her claim, but says she has the right to submit the claim again. She continues to dispute her termination and says she has been in communication with the SEC by phone and she met with officials with the federal agency last week.

The SEC has requested more information about the allegations from Kuba, part of a pattern of interaction between the agency and Kuba that Jordan Thomas, a former SEC attorney says may be indicative of an official inquiry into the claims.

“The SEC receives more than 25,000 tips, complaints, and referrals each year, and the vast majority do not make it this far,” Thomas said.

What is your opinion? Do you think the former employee’s claims are bogus? Or do you think Disney employees falsified revenue reports? Let us know what you think and why in the comments below!

Source: MarketWatch.com

 

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