Ex-Disney accountant alleges major accounting fraud in parks and resorts division

DDLand

DDLand

Well-Known Member
This is rather ridiculous. There is no way that some accounting tricks for $500 gift cards would result in a meaningful fraud of billions. If each $150 scam required an individual software command, it would have to be executed 6 Million+ times to generate even a billion in revenue. Now it is possible that we could see fraud in 8 to 9 digits range, but even then doubtful.

Disney had a chance to get ahead of this story if it were bad.
It’s not...
 
Horizons '83

Horizons '83

Well-Known Member
In the Parks
No
DDLand said:
This is rather ridiculous. There is no way that some accounting tricks for $500 gift cards would result in a meaningful fraud of billions. If each $150 scam required an individual software command, it would have to be executed 6 Million+ times to generate even a billion in revenue. Now it is possible that we could see fraud in 8 to 9 digits range, but even then doubtful.

Disney had a chance to get ahead of this story if it were bad.
It’s not...
Click to expand...
I worked for Home Depot in their finance dept. for years, you'd be surprised how much can be had in gift card fraud. We had one guy who got away with $120K in one year, and that's just one person. But billions would seem a bit aggressive, millions yes.
 
S

seascape

Well-Known Member
This is the real news story. It may be true or it's not but this is real news. I can see some of it being true and part wrong.

The way I read the story is it deals with gift cards and revenues. When the money is recorded and how much. Specifically was an example of giftcards given by hotels. It is possible the revenue was counted by themeparks as revenue when the card was redeemed. This would be correct if it was deducted by hotels as an expense at the time it was given. Another was on discounted cards. Again, if the discount was taken at the point of sale as an expense, the revenue can be counted at the point of redemption. I will wait to see what the SEC and IRS say on this.
 
bartholomr4

bartholomr4

Well-Known Member
So some details for Context:

  • The initial complaint to the SEC by the former employee occurred in 2017
  • She was fired by Disney "For Cause" in 2017
  • She filed a claim against Disney in 2017, then dropped the case in 2018
  • The issue is related to a flaw in the Accounting Software
  • The complainant worked for Disney for 18 years
  • The SEC has been aware for the last 2 years but has not taken action.
  • It looks like the issue is being pushed by her attorney
  • The involvement of the Attorney has caused the SEC to ask Disney for more data
  • Disney says it has "thoroughly reviewed her charges and found them to be utterly without merit"

We should wait for more disclosures, but the charges are serious and not something I think Disney would avoid if true. The associate appeared to be a lower level finance analyst, and I doubt, before today, that Bob Iger would have heard of the issue.
 
asianway

asianway

Well-Known Member
TJ Vazquez said:
I worked for Home Depot in their finance dept. for years, you'd be surprised how much can be had in gift card fraud. We had one guy who got away with $120K in one year, and that's just one person. But billions would seem a bit aggressive, millions yes.
Click to expand...
I’m assuming you mean theft. This person is alleging material misstatement of revenue
 
LSLS

LSLS

Well-Known Member
TJ Vazquez said:
I worked for Home Depot in their finance dept. for years, you'd be surprised how much can be had in gift card fraud. We had one guy who got away with $120K in one year, and that's just one person. But billions would seem a bit aggressive, millions yes.
Click to expand...

Billions is too much for just gift cards, but if you include others, I don't know, maybe? Accounting is my worst subject, but it mentions things like gift giveaways adding to revenue. Or, what if it is something like recording the full price of items for all pass holder/Visa card holders. That could add up very large. BUT, that seems like a large operation to undertake with it not being caught on.

Anyways, if this is true, this could turn these boards over more than the expose (think about how many times spending was up for a quarter that brought up debate). That said, I'd be FLOORED if this was anything more than partially true (maybe 6 figures done by lower guys trying to hit their numbers).
 
cosmicgirl

cosmicgirl

Well-Known Member
WDW Guru said:
That's really hard to believe that they could get away with that level of fraud. 250%????
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It's a mind-boggling number. That said, I can easily think of a few ways they could've polished the numbers, especially around that time. We booked a ridiculously cheap stay at CSR in the UK that year with the dining plan. We paid roughly €21pppn for the dining plan, but of course the menu cost of the meals covered was much higher, as it included 1 table service, 1 quick service, and I think 1 snack per night. If they used the full menu prices as the revenue then the amount was easily doubled.

Maybe this is the real reason behind free dining?

True or not, right now it does look like someone's looking to make a point this week.
 
Horizons '83

Horizons '83

Well-Known Member
In the Parks
No
When the gift cards are purchased they sit on the books as a liability until redeemed, and as you alluded, should be expensed at that time. I have seen, in our stores, inside jobs, where they scan the gift card, enter in a normal denomination ($100 for example) and if their software has loopholes, increase that on the backend to say $1000 without a trace. Having worked as a SFA at a major retailer I am very interested in how this turns out.
 
S

seascape

Well-Known Member
TJ Vazquez said:
When the gift cards are purchased they sit on the books as a liability until redeemed, and as you alluded, should be expensed at that time. I have seen, in our stores, inside jobs, where they scan the gift card, enter in a normal denomination ($100 for example) and if their software has loopholes, increase that on the backend to say $1000 without a trace. Having worked as a SFA at a major retailer I am very interested in how this turns out.
Click to expand...
You are right. The giftcard should be held as an assest and liability. The only question is the dollar amount. Take the Target giftcards. The cinsumer buys a $50.00 card for $47.50. I don't know what Disney actually pays Target but lets say the pay Target $45.00. Now, if they can legally take the $5.00 as an expense today and $50.00 as a liability they save on taxes today and claim all the income tomorrow. The whistleblower may think they overstated the revenue at the point of sale. Personally, I love and use discounted gift cards all the time.
 
bartholomr4

bartholomr4

Well-Known Member
TJ Vazquez said:
When the gift cards are purchased they sit on the books as a liability until redeemed, and as you alluded, should be expensed at that time. I have seen, in our stores, inside jobs, where they scan the gift card, enter in a normal denomination ($100 for example) and if their software has loopholes, increase that on the backend to say $1000 without a trace. Having worked as a SFA at a major retailer I am very interested in how this turns out.
Click to expand...

The forensic accounting required to weed this out could be huge. You'd literally need to review every transaction to figure out where and when it happened. Just because it is possible to game the accounting platform like you suggest, doesn't mean every transaction was gamed. Is she assuming because it could happen, it did happen? The amount of money she is charging is astronomical. kinda hard to believe on the face ..... but we will wait and see as the SEC has asked for more data.
 

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