Rick----
This is where we are with the audit:
1.
For 2007, Deloitte is unable to get the necessary
documentation/support/comfortable with the 3x multiplier ($2.4M times 3
for $7.2M). The level of documentation they want is not at a level that our
internal and external counsel is willing to share. Counsel is concerned that
any detail support to Deloitte will be subject to an OIG subpoena.
Therefore, | suggest we record the reserve amount for 2007 at $2.4 million
(which is supported by our public filing).
The second issue is whether the reduction of the reserve recorded in 2005
should be reduced as of: 1) 2005; 2) 2006 or 3) 2007. Any reductions in
2005 or 2006 will require a restatement and will result in a material internal
control weakness.
Looking at the timing and events from a position of not being involved in
the decisions at the time, it looks as though the reduction should have
‘occurred in 2006 when the filing was made.
On the other hand, a reduction in 2007 would have to be characterized as
a change of estimate and would require some logic as to why the amount
should not have been reduced in 2006 and why it was reduced in 2007.
When we discussed this last time, it sounded like the Board felt strongly
that the $38.2 M was still appropriate for 2006; that only with the October
2007 phone call with the OIG and their non-interest in ABN and APC
issues, was there growing comfort that the OIG was interested in working
with us and that our exposure may be less, and based on the October and
subsequent phone calls believe the amount should be reduced 2007.
| would appreciate your thoughts....and if you believe the reduction should
be in 2007, any additional rationale that | can use with Deloitte would be
great.