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Deloitte Blasts Adelphia on Audit

Adelphia Communications Corp.'s special committee of independent directors withheld information from the company's former auditors — Deloitte & Touche — making it nearly impossible for the company to complete its duties, it said in a July 1 Securities and Exchange Commission filing.

Included in the amended 8-K statement filed by Adelphia was a letter from Deloitte & Touche, claiming the MSO allowed six financial and investor-relations professionals who may have been implicated in inappropriate conduct to continue working at the company during early June.

Deloitte said it could not rely on information provided by those executives — who were not named — even as they cooperated with federal authorities investigating the company.

"To the extent that any of those persons have been involved in illegal activities, there is no way that we would be willing to rely on their representations, and indeed the mere fact that they remain in their positions raises additional concerns," Deloitte wrote.


Deloitte suspended its audit of Adelphia on May 14, but the company said in the letter that Adelphia had tried to resume that audit as recently as June 3 — six days before Deloitte was dismissed as auditor by Adelphia — and that the MSO refused to supply it with adequate information.

According to the filing, Deloitte said there were three areas that either required an expansion of the scope of its audit or raised questions about its willingness to rely on information supplied by management: co-borrowing agreements, digital-converter box purchases and debt compliance issues.

Regarding the co-borrowing agreements, Deloitte said it met with Adelphia's chief financial officer, its vice president of finance, outside counsel for the company and the MSO's controlling Rigas family on May 9 to prepare for a May 10 meeting with the SEC.

At that May 9 meeting, Deloitte insisted that certain information — including two letters from Adelphia's outside counsel, Buchanan Ingersoll PC — be provided to the SEC. Deloitte claimed that the Buchanan Ingersoll letters, contained detailed information and examples related to the agreements.

Adelphia management refused to include the examples, to which Deloitte objected.

After the May 10 SEC meeting, Deloitte said Adelphia management told the auditor that it had changed its conclusion relating to the accounting treatment for the co-borrowing agreements from the position it had presented to the SEC on that day.


On May 23, Adelphia said in a press release that the Rigas family had incurred $3.1 billion in debt for which it was liable — up from the $2.3 billion previously released.

Regarding the digital-converter purchases, Deloitte said it first became aware of the transactions on April 23, when it learned that the company had recorded about $102 million in set-tops as assets on the books of a Rigas entity that was party to the co-borrowing agreements but was not a subsidiary of the company.

When Deloitte made inquiries about the transaction, it was told that the boxes were purchased in 2001, and that the actual boxes had not been physically transferred from the locations where the company had received them.

"We subsequently learned that, in a related transaction, $102 million in borrowings under a co-borrowing agreement had previously been removed from the company's books and recorded on the books of another Rigas family cable entity in October 2001," Deloitte wrote.

Later, the auditor said Adelphia had no explanation why a Rigas entity that had no cable operations would buy converter boxes.

Adelphia, which filed for Chapter 11 bankruptcy-court protection from its creditors on June 25, said it would address the Deloitte accusations in a later SEC filing.