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Entergy Corp. to Pay $12M Civil Penalty for Accounting Controls

3 min read

Entergy Corp. of New Orleans, the parent company to Arkansas’ largest electric utility, Entergy Arkansas, has agreed to pay a $12 million civil penalty in a case involving internal accounting controls, the federal government announced Friday.

The Securities and Exchange Commission said Entergy failed to accurately account for surplus materials and supplies. Those inaccuracies ended up on the utility’s books and in its financial statements, the SEC said. The accounting failed to comply with generally accepted accounting principles, known as GAAP, the government said.

The SEC complaint, filed in U.S. District Court for the District of Columbia, accused Entergy of including materials and supplies as balance-sheet assets from at least mid-2018 to present when employees and management consultants knew that the materials included a substantial potential surplus. The assets included old materials and excess supplies that Entergy no longer expected to use, and goods that exceeded maximum stocking levels judged as necessary by its business units.

Entergy Corp., in a statement to Arkansas Business, said it was happy to reach a resolution with the SEC. It added that it did not expect the outcome to have any material impact on its business, financial condition or “results of operations.”

Government’s Case

“Entergy failed to establish a comprehensive process to review these materials and supplies to identify surplus, remeasure it, and record any differences between its average cost and remeasured cost as an expense, in accordance with GAAP,” the SEC announcement said.

Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said internal accounting controls “serve as a front-line defense.” They are necessary to ensure reliable financial statements, he said.

 “Investors rely on public companies, such as Entergy, to ensure that adequate internal accounting controls are in place,” Wadhwa said in a news release. “We allege that Entergy failed to fulfill its obligation in this regard.”

Although Entergy did not admit the SEC’s allegations, it consented to a final judgment, subject to court approval. It agreed to pay the $12 million and to never again violate two sections of the Securities Exchange Act.

The utility will also adopt an independent consultant’s recommended improvements to its internal accounting processes.

Ada Fernandez Johnson, Katherine H. Stella, and Brian Palechek conducted the SEC investigation. They worked under the supervision of Lisa Deitch, Peter Rosario, Ryan Wolfe, and Stacy Bogert. Carina Cuellar and Christopher Bruckmann assisted in overseeing the inquiry, the release said.

Entergy’s Position

Entergy’s full statement: “Entergy has settled the matter with the SEC and has supplemented its existing inventory management practices by implementing additional processes and internal controls to address potential surplus inventory and will be working with an independent consultant to evaluate these enhanced processes and controls. We are pleased to have resolved this matter with the SEC and will continue our focus on providing safe and reliable service to our customers and other key stakeholders.

“The company has previously disclosed in its quarterly reports to the SEC that it has been working with SEC staff to reach a resolution to the investigation. The resolution will not have a material impact on Entergy’s business, financial condition or results of operations.”

 

 

 

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