Adelphia Addresses Auditors

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Adelphia Communications Corp. last week fired back at allegations by former auditors Deloitte & Touche, admitting it had held back information from that firm.

But according to a former employee, the practice was widespread at the Coudersport, Pa.-based MSO, well before its most recent problems came to light.

In an 8-K filing with the Securities and Exchange Commission on July 8, Adelphia stated that the refusal by former auditors Deloitte & Touche to continue the audit of its financial statements was unreasonable. Deloitte halted its examination of Adelphia's books on May 14; Adelphia fired the auditor on June 9.

"In light of that unreasonable refusal, the company determined that it was not appropriate to share with Deloitte any additional information, including the information Deloitte claims was withheld," Adelphia said in the filing.

PricewaterhouseCoopers LLP is now Adelphia's auditor.

In a July 1 SEC filing, Deloitte claimed in a letter that it would not resume the audit because several employees who could possibly have been involved in illegal activities were still employed by the company. In its response last Monday, Adelphia said those employees were reassigned to other areas of the MSO and are cooperating with federal authorities.

Adelphia filed for bankruptcy protection on June 25, after revealing on March 27 that it had $2.3 billion in off-balance sheet debt — which has since grown to $3.1 billion — held in partnerships controlled by its founding Rigas family. The company also is under investigation by U.S. prosecutors in New York and Pennsylvania.

But Adelphia failed to address some of Deloitte's other claims, including allegations that the MSO had approved the purchase of $102 million worth of set-top boxes by a Rigas-controlled entity that had no cable operations.

LAYOFFS IN FLORIDA

Also last week, the company laid off its entire direct-sales force in Florida — about 48 workers — citing the lack of need for direct sales in light of the bankruptcy filing.

Adelphia spokesman Stuart Fischer said no additional layoffs are expected in the near term.

"Adelphia has always sized its work force commensurate with the services we provide," Fisher said. "The same holds true during this restructuring process.

"The Chapter 11 filing does not affect this decision-making process. No additional decisions about staffing levels have been made by Adelphia at this time."

In its July 1 filing, Deloitte had repeatedly complained that Adelphia management had declined to provide it with necessary information. But according to one former Adelphia worker, the practice was commonplace even among Adelphia employees.

According to U.S. Naval Reserve Lt. Cmdr. Jonathan Holsinger, Adelphia routinely kept bad records and regularly declined to provide him with information that he claimed was necessary to do his job.

Holsinger, who currently is on active duty at the U.S. Navy's Naval Supply Support Command in Mechanicsburg, Pa., had served as Adelphia's payroll manager in Coudersport from February 2000 to Sept. 24, 2001. Holsinger said he was fired after a mixup concerning holiday pay to his wife, a temporary employee in Adelphia's human resources department.

Holsinger also said he was called on the carpet after he had adjusted his own pay, an action he took after determining that he'd received less than the company had originally offered him.

But though he said Adelphia officially dismissed him and his wife for "lack of work," he believes that the real reason for his departure was that he was "getting too close" to some of Adelphia's questionable accounting practices.

Holsinger said he began to get the cold shoulder from Adelphia managers after he requested to be a part of the company's acquisition team, and asked for related accounting records.

In an interview, Holsinger said he felt he needed to be a part of the acquisition team in order to coordinate the disparate payroll systems used by Adelphia's then-recent acquisitions, Century Communications Corp. and FrontierVision Partners L.P.

"My having access to those records would have revealed to me what ultimately came out in March of this year," Holsinger said. "And yet, the only thing I was trying to do was my job."

He later requested payroll and accounts receivable records from an Adelphia warehouse in Colorado, which were shipped on 14 palettes in a tractor-trailer to Coudersport. He was never allowed to see those records, he claimed.

"The record keeping there was not very good," Holsinger said. "I tried to change that."

Holsinger was recruited by Adelphia in late 1999 and decided to join the company in February of 2000, uprooting his wife and children from their home in Atlanta. He added that he began to see irregularities in Adelphia's payroll methods almost from his first day on the job.

UNUSUAL PRACTICE

For a company of its size, Holsinger said, Adelphia had a rather antiquated payroll system. But what concerned him more was the company's practice of shorting its salaried employees a day's pay each year, claiming that because they were paid on a biweekly basis, Adelphia was slightly overpaying them.

According to Holsinger, that money was put in a separate account. Salaried employees received that pay back after their 11th year of service. If they left the company before year 11, they didn't receive anything.

Janet Tombow — president of the American Society for Payroll Management, a professional association based in Covina, Calif. — said that shorting employees a day's pay each year is an unusual practice, but not necessarily illegal.

"I haven't heard of it," Tombow said. "It certainly is an interesting way to do things. But as long as it is administered to everyone and is documented, a company is free to pay its salaried people anyway it chooses."

Holsinger said he did not know how much money was in that account or what happened to the money taken from employees who left before 11 years were up. However, he estimated that about 30 percent of Adelphia's 17,500-person workforce — or 5,250 workers — is salaried.

If those employees were making an average of $30,000 per year, that works out to about $115.39 per day. Multiply that by 11 years, and 5,250 employees, and the account could potentially contain some $6.7 million.

Justine Tenney, a partner and CPA in M.R. Weiser & Co. LLP — an accounting firm with offices in New York, New Jersey and Long Island, N.Y. — also agreed that the practice was unusual.

"Even though there may have been a couple of extra days in one year, on an accounting basis you would do an accrural or deferral to get the right amount of pay in a year," Tenney said. "It shouldn't have affected their accounting, their financial statements, at all, because you can make an adjustment for that kind of thing. It just doesn't smell right."

Fischer, the Adelphia spokesman, said that the MSO would not comment on individual employees or their employment records.

But Fischer categorically denied Holsinger's accusation.

"His description of payroll is absolutely not true," Fischer said. "Adelphia takes an employees salary divides it by 365 days to get a daily rate and every two weeks they get 14 days of pay.

"Other companies take salary and divide by 26, and every two weeks you get one-twenty-sixth of your pay. Adelphia does it differently."

But that may be a problem as well. James Medlock, senior director of education at the American Payroll Association, another industry trade group, said the Department of Labor could have issues with Adelphia's payment methods.

"Not wanting to speak for the Department of Labor, they might have a problem with it, because the salaried employee has to be paid their full salary each pay period to be an exempt employee," Medlock said. "I've heard of a couple of companies that have done that, I have not heard of anyone actually complaining to the Department of Labor about it.

"But if I were in that position, I've never had a pay practice that has worked that way, and I've been doing payrolls for 26 years."

LOAN FUNDS AVAILABLE

Adelphia also had a generous employee-loan program — through which the company made interest-free loans available to all of its workers — but the oversight on those loans was quite lax, according to Holsinger.

In many instances, loans were approved many times without regard to an employee's qualification for the loan or their ability to pay, said Holsinger. He pointed to one particular employee who already had between $10,000 and $15,000 in outstanding loans, who was readily approved for additional outlays. Meanwhile, other employees were denied for arbitrary reasons.

Loan payments were also automatically deducted from employee paychecks. Employees who were living in Rigas-owned apartments also regularly had their rents automatically deducted from their pay.

"The whole thing was kind of irresponsible, I think," Holsinger said.

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