Publicis Q4: $15.5M Army Fraud Settlement Not Noted in Its Numbers

Last Updated Feb 11, 2009 12:15 PM EST

Publicis Groupe's Q4 numbers successfully conceal the payment of $15.5 million to settle allegations that its Leo Burnett unit defrauded the U.S. Army (during a war!) by overbilling its recruitment ad account.

There is no mention of the extraordinary expense in the numbers, out today, even though the full-year financials show much smaller amounts passing through Publicis's income statements.

Publicis said back in January that the settlement:

... will not affect Publicis Groupe's earnings since the payment amounts have been fully accrued in prior fiscal periods.
A look at Publicis's Q2 and Q3 statements (here and here) shows the settlement was not mentioned specifically in either release. Today's Q4 numbers give the company's earnings for the entire year, and the scandal isn't noted there either.

As far as the top and bottom lines go, it wasn't a bad quarter for Publicis. Free cash flow for the year increased 4 percent to €639 million. Q4 revenues went up 5.5 percent to €1.373 billion; net income declined slightly to €447 million -- pretty healthy given the recession.

But it is the lack of disclosure to investors of the extraordinary $15.5 million expense that is a genuine cause of concern. That was $15.5 million that could have been paid in dividends or used to finance the acquisition of a small company.

BNET noted in October that the European way of disclosing financials is nontransparent. If Publicis was a U.S. company, it would at the least have a disclosure section in its annual report noting its legal liabilities; and probably the same in its quarterly statements. But in two quarters of the year, Publicis does not have to discuss P&L or expenses, let alone any potential legal liabilities. I wrote at the time, "They could have a line on the income statement for cheese and wine expenses, for all we know."

In hindsight, a buffet budget would have been far more preferable to the actual expenses that were hidden in those off-quarter statements.