Compliance Hotline

DOL ARB Upholds Whistleblower, Ruling, But Allows Appeal

A Department of Labor Administrative Review Board has upheld an Administrative Law Judge's 'preliminary order of reinstatement' against a SOX whistleblower, but also ordered that the former employer would have 10 days to move for a stay of that order. Welch v. Cardinal Bankshares Corp., ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB Mar. 31, 2006).

The ALJ had previously ordered the reinstatement of the SOX whistleblower, but because the ALJ issued a merits decision and then a second decision on damages, erroneously placing a notice of appeal rights on the earlier merits decision, there was confusion over when the matter became ripe for appeal to the ARB, and whether the reinstatement order was merely recommended. When the employee sought enforcement of the reinstatement order, however, the federal district court concluded that the employer did not, under the circumstances, have adequate notice, and that the ALJ's reinstatement order could not be enforced without the employer having had the opportunity to seek a stay from the ARB. The district court therefore dismissed the enforcement action, but indicated that the dismissal was without prejudice to file a new motion to seek enforcement if the ARB denied a stay on the merits.

The ARB noted that the applicable SOX regulations must have an ALJ decision requiring reinstatement to become effective when the employer receives the decision, and will not be stayed unless the Board grants a motion to stay the reinstatement. The ARB found that while the employer's arguments against the employee's motion 'have no merit,' there are 'unusual circumstances' surrounding the case. Therefore, the ARB ordered the ALJ's preliminary order of reinstatement to remain in effect, but that the employer had 10 days from the date it received the ARB's order to move the Board, pursuant to 29 C.F.R.
' 1980.110(b), to stay the effect of the preliminary order of reinstatement.

Sentencing Commission Votes to Delete Wording

The U.S. Sentencing Commission voted unanimously at its April 5 public meeting to delete the 2004 commentary to the organizational sentencing guidelines stating that waiver of attorney-client privileges and work product protections is not a prerequisite for an organization to receive credit for cooperation at sentencing. The Commission planned to send the proposed amendments to the guidelines to Congress by May 1, and they will take effect Nov. 1 unless Congress rejects or modifies them. Formal language on the waiver deletion was not adopted during the meeting, but will be made public shortly, according to the commission.

FASB Proposes Changes to Retirement Plan Reporting

The Financial Accounting Standards Board has issued a proposal that would require employers to recognize the overfunded or underfunded positions of defined benefit postretirement plans, including pension plans (“plans”), in their balance sheets. The proposal would also require that employers measure plan assets and obligations as of the date of their financial statements. The exposure draft applies to plan sponsors that are public and private companies and nongovernmental not-for-profit organizations. It results from the first phase of a comprehensive project to reconsider guidance in Statement No. 87, Employers' Accounting for Pensions, and Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. A second, broader phase will comprehensively address remaining issues. The Board expects to collaborate with the International Accounting Standards Board on that phase. Currently, accounting standards do not provide complete information about postretirement benefit obligations. The proposed changes, other than the requirement to measure plan assets and obligations as of the balance sheet date, would be effective for fiscal years ending after Dec. 15, 2006. Public companies would be required to apply the proposed changes to the measurement date for fiscal years beginning after Dec. 15, 2006 and nonpublic entities, including not-for-profit organizations, would become subject to that requirement in fiscal years beginning after Dec. 15, 2007. The Board is seeking written comments on the proposal by May 31, 2006.

PCAOB Addresses Issue of Quality Control Criticisms in Inspection Reports

The Public Company Accounting Oversight Board has issued two releases concerning the implementation of a SOX provision giving registered accounting firms an incentive to address quality control criticisms in Board inspection reports within 12 months after the Board issues the reports. In the first release, the Board provided information about its process for determining whether a registered accounting firm has satisfactorily addressed quality control criticisms in an inspection report. It describes the Board's approach to implementing the SOX's incentive-based framework and describes the meaning and effect of a Board determination.

In the second release, the Board described observations about efforts undertaken by the four largest U.S. accounting firms to address quality control concerns identified during the Board's initial, limited inspections of those firms. Reports on those inspections were issued in August 2004. During the 12-month period that followed issuance of those reports, each firm engaged in substantial dialogue with the Board's staff concerning the firm's efforts to address the concerns, and each firm made a timely submission of evidence to describe those efforts. The second release includes a general summary of some of the types of steps taken by the firms to address the Board's quality control concerns in areas such as audit performance, evaluation and compensation of partners, independence, acceptance and continuance of clients, and supervision of foreign affiliates.

DOL ARB Upholds Whistleblower, Ruling, But Allows Appeal

A Department of Labor Administrative Review Board has upheld an Administrative Law Judge's 'preliminary order of reinstatement' against a SOX whistleblower, but also ordered that the former employer would have 10 days to move for a stay of that order. Welch v. Cardinal Bankshares Corp., ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB Mar. 31, 2006).

The ALJ had previously ordered the reinstatement of the SOX whistleblower, but because the ALJ issued a merits decision and then a second decision on damages, erroneously placing a notice of appeal rights on the earlier merits decision, there was confusion over when the matter became ripe for appeal to the ARB, and whether the reinstatement order was merely recommended. When the employee sought enforcement of the reinstatement order, however, the federal district court concluded that the employer did not, under the circumstances, have adequate notice, and that the ALJ's reinstatement order could not be enforced without the employer having had the opportunity to seek a stay from the ARB. The district court therefore dismissed the enforcement action, but indicated that the dismissal was without prejudice to file a new motion to seek enforcement if the ARB denied a stay on the merits.

The ARB noted that the applicable SOX regulations must have an ALJ decision requiring reinstatement to become effective when the employer receives the decision, and will not be stayed unless the Board grants a motion to stay the reinstatement. The ARB found that while the employer's arguments against the employee's motion 'have no merit,' there are 'unusual circumstances' surrounding the case. Therefore, the ARB ordered the ALJ's preliminary order of reinstatement to remain in effect, but that the employer had 10 days from the date it received the ARB's order to move the Board, pursuant to 29 C.F.R.
' 1980.110(b), to stay the effect of the preliminary order of reinstatement.

Sentencing Commission Votes to Delete Wording

The U.S. Sentencing Commission voted unanimously at its April 5 public meeting to delete the 2004 commentary to the organizational sentencing guidelines stating that waiver of attorney-client privileges and work product protections is not a prerequisite for an organization to receive credit for cooperation at sentencing. The Commission planned to send the proposed amendments to the guidelines to Congress by May 1, and they will take effect Nov. 1 unless Congress rejects or modifies them. Formal language on the waiver deletion was not adopted during the meeting, but will be made public shortly, according to the commission.

FASB Proposes Changes to Retirement Plan Reporting

The Financial Accounting Standards Board has issued a proposal that would require employers to recognize the overfunded or underfunded positions of defined benefit postretirement plans, including pension plans (“plans”), in their balance sheets. The proposal would also require that employers measure plan assets and obligations as of the date of their financial statements. The exposure draft applies to plan sponsors that are public and private companies and nongovernmental not-for-profit organizations. It results from the first phase of a comprehensive project to reconsider guidance in Statement No. 87, Employers' Accounting for Pensions, and Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. A second, broader phase will comprehensively address remaining issues. The Board expects to collaborate with the International Accounting Standards Board on that phase. Currently, accounting standards do not provide complete information about postretirement benefit obligations. The proposed changes, other than the requirement to measure plan assets and obligations as of the balance sheet date, would be effective for fiscal years ending after Dec. 15, 2006. Public companies would be required to apply the proposed changes to the measurement date for fiscal years beginning after Dec. 15, 2006 and nonpublic entities, including not-for-profit organizations, would become subject to that requirement in fiscal years beginning after Dec. 15, 2007. The Board is seeking written comments on the proposal by May 31, 2006.

PCAOB Addresses Issue of Quality Control Criticisms in Inspection Reports

The Public Company Accounting Oversight Board has issued two releases concerning the implementation of a SOX provision giving registered accounting firms an incentive to address quality control criticisms in Board inspection reports within 12 months after the Board issues the reports. In the first release, the Board provided information about its process for determining whether a registered accounting firm has satisfactorily addressed quality control criticisms in an inspection report. It describes the Board's approach to implementing the SOX's incentive-based framework and describes the meaning and effect of a Board determination.

In the second release, the Board described observations about efforts undertaken by the four largest U.S. accounting firms to address quality control concerns identified during the Board's initial, limited inspections of those firms. Reports on those inspections were issued in August 2004. During the 12-month period that followed issuance of those reports, each firm engaged in substantial dialogue with the Board's staff concerning the firm's efforts to address the concerns, and each firm made a timely submission of evidence to describe those efforts. The second release includes a general summary of some of the types of steps taken by the firms to address the Board's quality control concerns in areas such as audit performance, evaluation and compensation of partners, independence, acceptance and continuance of clients, and supervision of foreign affiliates.