Business practices at Bermuda resident Michael DeGroote's US-based accounting firm have come under the spotlight in a US-based business publication.

Business Week's February 21 edition features an article on Mr. DeGroote's Century Business Services Inc. under the title "Creative Accounting At Century?'' and the subtitle "DeGroote's results may be inflated''.

The article targets the growth of the Cleveland-based company, which was founded in 1996, into the seventh largest US accounting firm and one of the few which is publicly held.

The company reached that point by acquiring small to midsize partnerships and business service firms -- more than a hundred were purchased in the first two years -- and its reported revenues tripled in 1997 and doubled in 1998.

But some people have criticised the company's business model and accused the firm of using questionable practices to inflate its earnings.

Business Week reported: "Now it seems the naysayers may be right.'' And four months ago Merrill Lynch & Co. was hired to help find a buyer for the company while its share prices sunk from $251/4 on August 19, 1998, to $37/8 on February 9, 2000.

Business Week quoted New York bi-monthly Accounting Today's editor Rick Telberg as saying: "It's an accounting company that's in trouble over its accounting.

"There's nothing more embarrassing to a CPA or more damaging in a market place.'' Research firm Off Wall Street Consulting Inc. is quoted By Business Week as claiming Century Business exaggerated its earnings by recording revenue from acquired companies before the deals were closed.

This was denied by Century's Chief Financial Officer Charles Hamm.

A shareholder class action suit was filed against Century in September, 1999, which charges that Century misrepresented earnings by reporting revenues based on projected growth, not historical fact, and that insiders profited from the misrepresentation by selling artificially inflated shares.

Century said this suit is under review.

Also under contention is how the company amortised good will -- a method used by public companies to account for purchases when the price is over book value.

Century spread the good will over a 30 year period and then a 40 year period, a longer term accounting measure which tended to raise earnings, while most of its peers were spreading it over 15 years.

On December 28 the company announced that it would switch to the 15 year policy and said 2000 net income was set to be reduced by $16 million.

On January 31 the company announced that fourth quarter earnings would be much lower than expected and it predicted a downward revision of 2000 forecasts.

President and Chief Operating Officer Fred Winkler resigned the same day.

Mr. DeGroote blamed the earnings shortfall on low stock prices coupled with the effect this had on the morale of Century employees but added that company was still wrestling with the reasons behind the shortfall.

Meanwhile the company's cross-selling strategy appears to be floundering.

The article noted: "Firms that Century has bought up are loath to refer longtime clients to other Century offices, saying they don't know them well enough.'' This is the type of stumbling block many consolidators face, noted Jeffries & Co. analyst Susan Lacerra who recommended the company shift its focus from acquisitions to operations.

Saltz, Shamis & Goldfarb managing director Gary Shamis agreed. "They've bought up a lot of great firms. They just need to find someone to run the company.'' Michael DeGroote