Sam Sez

Date: Tuesday, June 04, 2002

Question: "Hmmm!? Why all the energy roundtrips, roundturns, and other accounting devices?"

Answer:

One perspective is to follow the money and see if there are "performance based" compensation or bonus clauses.

It appears that there was duplicity about the recent roundturn or roundtrip transactions among energy trading companies and perhaps other business enterprises. This old commodity term previously referred to the in- and out- of a trade. Commissions were based on roundturns.

Now this simple term has taken on a completely different and tainted meaning. It refers to a specious transaction more akin to a "wash sale." Perhaps, some applied it to climb the revenue scales. These companies would appear larger on a sales or revenue basis. But why? No real profit potential that way unless one had to meet or surpass job specificiations. However, this would simulataneously reduce the portrayed efficiency of the operation. Sales up but profits flat. A more likely explanation is that the perpetrators had their compensation tied to revenues (sales, trading activity) and not actual profitability. Exceed a stipulated target and then cash and/or options payments would kickin. Here, there is a potential pot-of-gold at the end of the rainbow and a powerful motive - money.

On a risk management and due diligence level, We can help you ascertain if these ploys or other similar devices were used in your corporations, trusts, or partnerships. To discover more, click here.





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