Financially troubled Revolution Lighting Technologies has affirmed accounting irregularities to the U.S. Securities and Exchange Commission, with several past quarterly and fiscal year reports now being revised and a number of employees being terminated.
Last December, the Stamford company reported to the SEC that it was undertaking an internal audit committee review and investigation into possible accounting errors, which it now confirms took place in its previously filed financial statements for each quarter of, and full year of, 2015-17 and for the first two quarters of 2018.
In one example of its errors, “The company’s financial statements for the fiscal year ended December 31, 2017 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles,” according to the latest SEC filing.
“However, as disclosed in the company’s current report on Form 8-K filed on December 11, 2018, the company’s Audit Committee has determined that this report on the company’s financial statements and internal control over financial reporting should no longer be relied upon. RSM has not completed its audit procedures and has not issued any report on the company’s financial statements for the fiscal year ended December 31, 2018.”
Accounting firm RSM resigned as the company’s independent registered public accounting firm earlier this month. Revolution is now in the process of securing a new accounting firm.
The audit committee was formed after the SEC issued a subpoena on April 23, 2018 focused on revenue recognition practices at Revolution’s Energy Source division. The committee’s investigation led to the dismissals of five Energy Source employees, although “the accounting errors identified through that investigation were immaterial,” Revolution said.
On Oct. 11, 2018, the SEC issued a second subpoena related to the company’s Value Lighting and All-Around Lighting divisions. The audit committee launched an investigation to examine “certain revenue recognition practices” at those divisions, including the booking of revenue using “bill and hold” accounting – wherein a company recognizes revenue before delivery takes place – for certain transactions taking place from 2014 through 2018.
Certain members of Value Lighting’s management and financial teams who were in place at the time of the bill and hold transactions are no longer employed by the company. Value Lighting’s former CFO, who left the firm in mid-2016, “caused certain documents memorializing agreements to terms relevant to recognizing revenue on a bill and hold basis to be backdated and altered,” Revolution said.
In addition, the CFO of the company’s multifamily division, to which Value Lighting belongs, was in October 2018 made aware of the falsification of documents that occurred in or about early 2016, but failed to alert the audit committee or other company officials for five months.
The CFO will be terminated following a 90-day transition period in a non-accounting capacity.In addition, the vice president of sales and a systems analyst at Value Lighting will be terminated, as will other “certain current employees.”
CEO Robert LaPenta was determined not to have knowledge of the errors and will remain in that role.