AlarmForce Admits to Wrongfully Charging Monitoring Fees After Subscription Cancellations
AlarmForce said its policy review resulted from due diligence undertaken during a potential sale process.
TORONTO – Following a review of its residential subscription cancellation practice, AlarmForce Industries (TSX: AF) announced it wrongfully continued charging monitoring fees in some jurisdictions until customers returned their alarm equipment.
Retroactive to Aug. 1, 2013, residential customers who have been incorrectly charged monitoring fees subsequent to the cancellation date will receive a refund of those charges, plus interest, the company announced in a news release. AlarmForce said it is considering its cancellation and other practices relating to existing residential customer contracts in all jurisdictions.
The company said its review, in part, resulted from due diligence undertaken during a potential sale process. During the course of the review, the company’s cancellation practice was raised as an issue. With the assistance of outside advisors, AlarmForce determined that immediate action was required to change the practice to resolve the issue.
AlarmForce also announced that as a result of this change in practice, it is undertaking a detailed examination of its revenue recognition policies for the periods starting fiscal Q4 2013 for revenue generated from customer contracts after a customer had requested cancellation of services. Where legislation governing consumer agreements prohibit charges made after cancellation notices, the company’s preliminary conclusion is that the cancelled subscription revenue should not have been recognized.
AlarmForce said it may need to restate reported revenue for some or all such previously reported financial results in relation to charges previously recognized from cancelled customer agreements where the company’s practice did not comply with such legislation.
Due to the scope and work involved in this review, the company does not expect it will have completed the necessary work to assess any required restatement and for the reporting of its quarterly financial results by Sept. 14. The company said it will provide timely updates as to the expected date of reporting of its financial results.
AlarmForce said it has been reassessed by tax authorities for the State of Florida in relation to the company’s classification of installers as independent contractors. The Florida tax authorities have taken the position that the company’s contract installers should have been classified as employees.
The company is currently subject to two upcoming audits – an IRS Employment Tax Examination for 2014, and an audit under the Employer Health Tax Act in Ontario, Canada, commencing in September. Consequently, the company is considering possible employee tax liabilities in connection with the classification of its independent contractors and is currently evaluating the impact of whether this possible liability affects Q3 2016 or prior periods.
The company said it is considering how it will address classification of installers. A decision to convert installation personnel into employees will increase operating costs.
Security Is Our Business, Too
For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.
A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!