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Monsanto To Pay $80 Million – SEC Notes Importance Of Robust Accounting Compliance Systems

Posted On Thursday, February 11, 2016
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On Tuesday, the SEC announced that Monsanto Company had agreed to pay an $80 million penalty for accounting violations relating to its rebate program with retailers and distributors of its Round-Up Pesticide product. The SEC also announced that three accounting and sales executives agreed to pay individual penalties to settle charges against each of them.

According to the government, Monsanto offered rebates to retailers and distributors of Round-Up after generic competition had undercut its prices and caused a significant loss of market share to the company. While Monsanto booked substantial amounts of revenue resulting from the rebate programs, it failed to recognize all of the related program costs at the same time. The SEC concluded that Monsanto had materially misstated its consolidated earnings in corporate filings during a three-year period.

According to the SEC, Monsanto first ran afoul of accounting rules when, in 2009, it promised retailers and distributors the opportunity to participate in a new rebate program in 2010 if they “maximized” their Round-Up purchases in the fourth quarter of 2009. Because the promise of participation in the 2010 rebate program was intended to incentivize sales in 2009, the company was required to record in 2009 a portion of Monsanto’s costs related to the program. Monsanto, however, improperly delayed recording those costs until 2010.

Monsanto also created a new rebate program for distributors who had failed to meet volume targets in 2009 whereby they could “earn back” rebates they failed to attain in 2009 by meeting new targets in 2010. That new program resulted in Monsanto paying $44.5 million in rebates to its largest two distributors as part of side agreements reached late in fiscal year 2009. Under those side agreements, the distributors would be paid the maximum rebate announced regardless of target performance. Again, because the side agreements were reached in 2009, Monsanto was required to report those rebates in 2009. The company improperly deferred recording the rebate costs until 2010. Monsanto repeated this process with a program in 2010 but improperly accounting for the $48 million in rebate costs in 2011.

According to Scott W. Friestad, Associate Director in the SEC’s Division of Enforcement, the overall result of Monsanto’s actions was that it resulted in the “booking of substantial amounts of revenue without the recognition of associated costs.” Mr. Friestad offered this comment regarding the importance of appropriate accounting compliance systems: “Public companies need to have robust systems in place to insure that all of their transactions are recognized in the correct reporting period.”

Two accounting executives, Sara M. Brunnquell and Anthony P. Hartke, as well as sales executive, Jonathan W. Nienas, will pay penalties of $55,000, $50,000 and $30,000 respectively. Both accountants, Brunnquell and Hartke, agreed to be suspended from appearing and practicing before the SEC as accountants. Brunnquell can apply for reinstatement after two years and Hartke can apply for reinstatement after one year. Monsanto, as well as the three individuals, entered into the agreed order without admitting or denying the findings.

The SEC announced that it did not find any personal misconduct by Monsanto’s CEO Hugh Grant and former CEO Carl Casale, who reimbursed the company $3,165,852 and $728,843 respectively for cash bonuses and stock awards they received during the period when the company committed the accounting violations. As a result, it was not necessary for the SEC to pursue a claw-back action under §304 of the Sarbanes-Oxley Act.

A copy of the Order can be found here.

Government Tackles Skyrocketing Scams In Medicare Billing For Home Care

Posted On Wednesday, February 3, 2016

Fraud in the home health care services sector – where Medicare spends $18 billion annually for home health-related services – is officially in the hot seat for government scrutiny.

In a concerted effort to tackle what has been considered rampant fraud, waste and abuse, the Centers for Medicare and Medicare Services extended moratoriums on new ambulance and home health care providers three times since mid-2013. These moratoriums, which the Affordable Care Act authorizes regulators to use, have covered major metropolitan and surrounding areas, including Florida, Illinois, Michigan, Texas, Pennsylvania and New Jersey. Originally, CMS’ justification for the bans included increased levels of fraud and unusually high ratios of providers to beneficiaries. Government attorneys have credited the most recent ban extension of January 2015 towards helping prosecutors address the extensive and time consuming nature of criminally investigating these scams.

Other states like Louisiana, a top five state for average home health payment per Medicare beneficiary, are spotlighting home health-care fraudsters with increasing urgency. Kenneth A. Polite Jr., U.S. Attorney for Eastern Louisiana, has announced that across Louisiana, home health-care schemes have become “the greatest and most significant trend” in health-care fraud in Medicare. As a result, Polite is launching a counteroffensive against these skyrocketing scams.

Louisiana’s most notable indictment emerged in March 2015, when 20 individuals – including not just ringleaders, but management, nurses, doctors, and marketers alike – were charged in a $30 million alleged conspiracy involving a company called Abide Home Care Services Inc. Lengthy sentences and millions in illegitimate payments are being pursued. Other recent takedowns in Louisiana include the indictments of three individuals in connection with an alleged $33 million fraud involving Christian Home Health Care Inc., as well as the indictments of a dozen individuals in connection with an alleged $50 million scam involving Interlink Health Care Services Inc. and other home health companies.

Fundamentally, the intended beneficiaries of the home health care benefit are those individuals who have trouble leaving home due to long-term disability or recent medical procedures. However, home health schemers are marketing and billing this benefit by certifying that at-home visits to patients are necessary, even though these patients are not, in fact, homebound. In addition, these at-home visits are upcoded and billed to Medicare as having required more skilled, complicated, and time consuming services than what is needed or actually performed.

Prosecutors’ tactics in identifying fraudulent upcoding are also increasing in sophistication. In building a case against Abide, for example, prosecutors used data analytics to establish findings that Abide was a top biller country-wide for several highly specific diagnoses that require steep payments to home health agencies. As Polite’s lead health fraud prosecutor Patrice Sullivan has explained: “The idea that [Abide’s] patient population has a bucketful of [lucrative] diagnoses – it’s even more than an anomaly, it’s statistically impossible.”

Government attorneys are not alone in their mission to crackdown on shady Medicare billing for home care. In Louisiana, the recent cases have been investigated with the help of special a special “strike force,” the FBI, and the U.S. Department of Health and Human Services’ Office of Inspector General.

U.S. Attorney Polite has stated that there is no end in sight for indictments, with several home health indictments pending and more likely to materialize throughout 2016.