In April of this year Rollins Inc., a pest control services company based in Atlanta, Georgia,
agreed to pay the Securities and Exchange Commission (SEC) $8MM. According to the SEC
press release, Rollins was found to have “improper accounting practices in order to boost its
publicly-reported quarterly earnings per share (EPS) to meet research analysts’ consensus
estimates,” (2022). This is another story of a company’s fraud being detected by the Division of
Enforcement’s EPS Initiative, which utilizes data analytics to find “hard-to detect accounting
and disclosure violations by public companies,” (SEC, 2022).
In the first quarter of 2016 and the second quarter of 2017 the CFO directed
reserves from accounts for termite, medical, and outside services to be reduced in order to
meet EPS research analysts’ expectations (Johnston et al., 2022). This earnings management
technique is described as the cookie jar reserves to obtain income smoothing. One can easily
get the desired number by increasing or decreasing (or just creating) the funds they have in
reserve accounts. The same effect can occur by increasing the distribution channels, which
would accelerate revenue recognition, or by postponing recording expense (Mintz & Morris,
2019). b
Mintz, S., & Morris, R. (2013). Ethical Obligations and Decision Making in Accounting (3rd ed.).
New York, NY: McGraw-Hill.
Johnson, J., Fike, R., & Mitsch, T. (2022, May 5). The SEC Closes the Cookie Jar – Recent SEC
Enforcement Activity Reaffirms Focus on Improper Earnings Management. Vinson &
Elkins. https://www.velaw.com/insights/the-sec-closes-the-cookie-jar-recent-sec-
enforcement-activity-reaffirms-focus-on-improper-earnings-management/
Securities and Exchange Commission. (2022, April 18). Rollins Inc. Agrees to Pay $8 Million to
Settle Accounting Violations. [Press Release]. https://www.sec.gov/news/press-
release/2022-
64#:~:text=The%20SEC%27s%20order%20finds%20that%20Rollins%20and%20Northen%2
0violated%20Sections,Securities%20Exchange%20Act%20of%201934.
