Media company Clear Channel Outdoor disclosed that it has advised U.S. authorities about accounting discrepancies caused by the misappropriation of funds at its Chinese subsidiary.
According to Clear Channel, “several employees” of Clear Media Ltd., an indirect, non-wholly-owned subsidiary of the company, are subject to an ongoing police investigation in China for misappropriation of funds. “Such misappropriation resulted in discrepancies between actual cash balances and cash amounts included in the company’s accounting records,” the company stated.
Clear Media Limited has conducted additional procedures and processes, including a special investigation by forensic accountants and an external law firm. This investigation found that “three bank accounts were opened in the name of Clear Media Limited entities, which were not authorized, and certain transactions were recorded,” the company said.
These matters have been referred to police in China for investigation. Additionally, the company said it has advised both the U.S. Securities and Exchange Commission and the Department of Justice of the investigation and intends to cooperate with these agencies.
The investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act.
As of Dec. 31, 2017, management assessed the effectiveness of the company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The assessment uncovered “a material weakness in internal control over financial reporting with respect to Clear Media Limited. Specifically, falsification of bank statements and other supporting documentation used to complete bank reconciliations, collusion and circumvention of controls enabled an employee of Clear Media Limited to misappropriate $10.2 million over several years and resulted in discrepancies between actual cash balances and cash amounts included in the company’s accounting records.”