Huffy has filed forms with the SEC disclosing potential problems with internal accounting procedures, also reporting a petition by unsecured creditors to block KPMG LLP, Huffy’s auditors since 1962, from retaining their position with Huffy.
The U.S. Bankruptcy Code requires Huffy to obtain the approval before retaining professional firms, such as auditors. KPMG wished to continue to serve as the Huffy’s independent auditors and Huffy filed an application to make this so, but the Office of the United States Trustee and the Official Committee of Unsecured Creditors in Huffy’s bankruptcy proceedings filed objections.
In light of these objections, the Huffy withdrew its application for the retention of KPMG. The motivations behind the filed objection were not disclosed, but in the SEC filing, Huffy did reveal a number of potential inconsistencies in internal accounting practices, particularly in the companys Canadian business.
Between the months of March and October of 2004, KPMG and Huffy were working together to make sense of certain issues which had been brought to their attention, including significantly higher-than-normal charges to income for customer returns and deductions related to Huffy’s Canadian business.
According to Huffy, KPMG indicated that they were concerned by a number of issues, including the substantial number of deductions, requests to return or returned merchandise, and credits taken by customers of the Canadian business during Q1 and early Q2 of 2004. KPMG indicated that while they were not aware of any specific improprieties, there was at least the possibility of irregularities that should be examined.
On KPMGs recommendation, Huffys Audit Committee approved the retention of an independent forensic auditor to conduct such an investigation. Before this forensic auditor could be hired, Huffy filed for Chapter 11 bankruptcy. Now, this retention is subject to bankruptcy court approval which has not yet been obtained, and an investigation has not yet been conducted. Since Huffy has now been blocked from retaining KPMG as its auditor, the investigation will likely be delayed further as it gets a new firm up to speed.
In other developments surrounding the Huffy Bankruptcy, the United States Bankruptcy Court has issued a Bar Date Order establishing March 15, 2005, at 4:00 P.M. EST, as the final date and time for filing proofs of claim or interest against Huffy Corporation and certain of its subsidiaries. According to the order, all claims against Huffy Corporation must be filed with an original proof of claim or interest with the Clerk of Court.
>>> It sure sounds like somethings rotten in Denmark, er . Canada. Were just waiting for the lawsuits to fly…