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John Hewitt, Liberty TaxLiberty Tax appears to be a business in turmoil. The resignation of KMPG as auditor brought into focus issues that led to the September 5 firing of founder and CEO John Hewitt. Area news reports say Hewitt was dumped following an investigation of employee complaints—including the human resource director—the CEO was heard having sex in his office and favored employees he was involved with.

However, KPMG said Hewitt is still apparently interacting with franchisees and area developers. Meanwhile, SEC documents include a complaint by former board member John Garel that Hewitt, who controls the company through his ownership of Class B Stock, was countervening the board through his actions.

Garel's letter reported Liberty Tax hired law firm, Skadden, Arps, Slate, Meagher & Flom, to investigate Hewitt's conduct. He did not specify them, but said they had been cover by area media. Area reports incude the November 9 issue of the "Virginia Pilot" cited the allegation and said the report also centered on claims former CEO favored employees with whom he was supposed to be involved romantically and hired their relatives.

Gorel's letter confirmed that on July 12, "the Company received an Ethics Hotline complaint regarding Mr. Hewitt." Hewitt, Gorel continued, refused to cooperate with the investigation or address employee concerns and "continued to engage in the same underlying behavior".

He also noted Hewitt's actions to replace independent directions. On November 6, Hewitt removed Thomas Herskovits and Robert Howard, replacing them with Nicole Ossenfort and John Seal. George Robson, chair of the audit committee, resigned the same day. Hewitt, Gorel wrote, also rejected the company's efforts to buy his Class B shares.

Events have also had an impact on management. Michael Piper, VP of financial products resigned on September 5, even though Liberty handed out retention bonuses to those who stayed. CFO Kathleen Donovan, who had received a retention bonus, resigned on November 7.

The KPMG letter said Ed Brunot, hired as CEO on, the new CFO were not informed of the reason for Hewitt's termination. The Virginian Pilot account said the law firm's investigation "found credible evidence the main allegations were true."

It was also alleged by employees that Hewitt repeatedly scheduled out-of-town meetings in cities where the New York Yankees were playing, so he could attend the baseball games.

"The correlation between Yankee games and trainings is so well known throughout the organization that a franchisee once emailed Mr. Hewitt to tell him that a Yankee game was scheduled in his city in the hopes of convincing Mr. Hewitt to agree to conduct a training session in that city," the report said.

The publication noted that Hewitt and his attorney had not commented on the report and Liberty Tax refused to comment.

The accounting firm noted there were no disagreements on an accounting principals or practices or financial statement disclosures. It also said it was not questioning manegement's integrity but rather the capital structure via which Hewitt controls the company.

KPMG's letter "informed the Audit Committee and management that it has concerns regarding the Company's internal control over financial reporting as related to integrity and tone at the top and such matters should be evaluated as potential material weaknesses." The accoounting firm said it can no longer rely on management's representations.

 

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
Last modified on Tuesday, 12 December 2017
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