POLISHAN ON TRIAL: KENIA POINTS FINGER

Byline: Jennifer Weitzman

SCRANTON, Pa. — The prosecution’s main witness in the Paul Polishan trial here Wednesday characterized himself as a soldier following orders, and those orders were to meet earnings estimates at nearly any cost.
In his second day of testimony, Donald Kenia, former corporate controller at Leslie Fay, told U.S. Attorney Bruce Brandler that Polishan orchestrated accounting irregularities dating back to the mid-Eighties, when Polishan was controller, and continuing after Polishan’s elevation to chief financial officer and until the company was rocked by financial scandal and bankruptcy in 1993. Speaking softly, he said he worked with divisional controllers entering wrongful journal entries by increasing inventory and lowering the company’s recorded overhead.
Kenia explained Leslie Fay’s budget process in detail, including how the financial group wrote up its snap and flash reports to arrive at each division’s fiscal budgets. But by the end of the discussion, Kenia was led by Brandler to say how final projection figures were continuously higher than the actual budget figures, despite tough economic times in the apparel industry.
The testimony on Wednesday offered a sharp contrast to previous witnesses who, since the beginning of the trial March 1, had focused on Polishan’s management style, which has been painted as controlling and mean-spirited.
“We would decide the changes by increasing the gross profit and lowering the overhead in order for the actual numbers to meet with projected earnings from 1990 to 1992,” Kenia said. Brandler methodically pressed Kenia to go over quarter-by-quarter and year-by-year entries, starting back in 1989, talking about where notations were adjusted by Kenia to meet Polishan’s expectations.
When asked if he thought Polishan’s budgets were realistic, Kenia said, “No,” adding that times rapidly were getting worse.
Kenia discussed at length Leslie Fay’s Sassco and dress divisions as examples of how he “cooked the books” to inflate earnings and please his boss. In the first case, the Sassco division’s actual budget was short between $4 million and $5 million compared to the estimated budget. Kenia said Polishan became angry, suggesting a mechanical error by a new divisional controller was to blame. Together, Kenia said, they inflated the in-transit inventory for the division by that amount in order for both budgets to match. Kenia said inventory was selected because Polishan felt it would be easier to conceal from BDO Siedman, the company’s outside auditors.
The next incident occurred in the dress division at the end of 1989. The group was $4 million to $5 million below its forecasted budget. According to Kenia, Polishan told him: “We don’t have a problem, you do. Fix it.”
Kenia said he looked at the inventory figures to see where he could inflate it by the shortage and bridge the gap. He also testified that when he told Polishan he had “fixed the problem,” Polishan told him he didn’t want to know how, but rather he wanted to make sure the outside auditors could not find a document trail.
Kenia also testified about changes in financial statements regarding the sale of its unsuccessful Head sportswear division made at the direction of Polishan in the third quarter of 1990. Kenia said.
Kenia is awaiting sentencing for his 1994 guilty pleas to filing false information with the SEC. Prosecutors have said they would recommend a lighter sentence for his testimony against Polishan.