Hertz Global Holdings has agreed to pay $16 million in fines to settle charges by the Securities and Exchange Commission over accounting errors at the rental car giant that led to financial misstatements.
According to the SEC filing, from February 2012 to March 2014 Hertz’s public filings “materially misstated pre-tax income because of accounting errors made in a number of business units, and over multiple reporting periods.” The accounting misstatements affected the company’s earnings reports during that period, making it appear that it was in better financial condition than it really was.
The SEC says it considered the “remedial acts promptly undertaken” by Hertz in accepting the company’s offer for a settlement. In August 2014, Hertz announced the replacement of its lead independent director, and in September 2014 it announced the replacement of its chief executive officer.
In its order, SEC states that part of the misstated income resulted from errors made in various accounts that are subject to management estimates.
According to the SEC, “for years,Hertz’s allowance related expenses were understated and income was inflated because Hertz relied on inappropriate estimation methodologies that resulted in inadequate allowances and write-offs. The inappropriate methodologies occurred within a pressured corporate environment where, in certain instances, there was an inappropriate emphasis on meeting internal budgets, business plans, and earnings estimates.”
SEC also reported that on July 16,2015, Hertz’s restatement identified 17 areas with material accounting errors across the company’s business units, 11 separate material weaknesses in Hertz’s internal controls over financial reporting and acknowledged that “an inconsistent and sometimes inappropriate ‘tone at the top’ had existed and may have contributed to a number of errors, misstatements and omissions.”
As part of the settlement, Hertz did not admit or deny the SEC’s findings, but agreed to pay the fine. 