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"... 'matching' [of] revenues and expenses, ... is a fundamental aspect of day-to-day record keeping on the accrual-basis.” - Judge Clement, October 2, 2013 Opinion in 13-30315
“…matching is required and occurring with respect to the vast majority of accrual-basis claims.” – Judge Clement, October 2, 2013 Opinion in 13-30315
Last year the 5th Circuit Court of Appeals, along with Judge Barbier of the Eastern District of Louisiana, held that profit and loss statements (P&Ls) supporting claims for losses under the BP Deepwater Horizon Economic & Property Damages Settlement must be “sufficiently matched.” This resulted in Claims Administrator Patrick Juneau’s development of Policy 495: “Matching of Revenues and Expenses.” This eighty-eight page addendum was meant to more accurately measure loss associated with the disaster by treating claims based on cash accounting principles more like those supported by accrual P&Ls (an oversimplified explanation to be sure).

“Vast Majority” of Accrual BP Claims Already Sufficiently Matched

Both the appellate and trial courts assumed that the consequences of this new matching requirement would fall primarily on the backs of cash basis claimants, as matching of revenues and expenses is already baked into claims supported by accrual P&Ls:

“[A]ccrual accounting has as a fundamental principle the recognition of revenue when the entity becomes entitled to receive payment, as opposed to when the payment is actually received. Expenses that can be readily traced to the recognized revenues are themselves recognized at the same time as those revenues. … This is sometimes referred to as ‘matching’ revenues and expenses, but in any case this procedure is a fundamental aspect of day-to-day record keeping on the accrual-basis.” – Judge Clement, October 2, 2013 Opinion in 13-30315 at 11 (emphasis added)

“Ordinarily, such ‘matching’ will occur naturally when a claimant maintains its accounting records on an accrual basis.” – Judge Barbier, Order & Reasons, December 24, 2013, Footnote 5

Synonyms for “ordinarily” include “usually,” “mainly,” “mostly,” and “most of the time.” In other words, following Judge Barbier’s reasoning, at the very least, greater than 50% (i.e. “most”) of all accrual based claims should at the outset be deemed sufficiently matched and thus processed as per the original causation and compensation constructs found in the Settlement Agreement (Exhibits 4B & 4C), not Policy 495.

Further, Judge Clement of the 5th Circuit Court of Appeals wrote that accrual P&Ls are sufficiently matched in the “vast majority” of instances:

“…the parties apparently agree that matching is required and occurring with respect to the vast majority of accrual-basis claims.” – Judge Clement, October 2, 2013 Opinion in 13-30315 at 17 (emphasis added)

“Ordinarily, such ‘matching’ will occur naturally when a claimant maintains its accounting records on an accrual basis.” – Judge Barbier, Order & Reasons, December 24, 2013

Like Judge Barbier’s “ordinarily,” Judge Clement’s “majority” means more than half. Yet Judge Clement goes further by adding the modifying adjective “vast,” which indicates that some number of accrual P&Ls well in excess of 50% must be deemed sufficiently matched. Synonyms for “vast” include “huge,” “extensive,” “sweeping,” “enormous,” “immense,” “great,” “massive,” “tremendous,” etc.

In other words, according to Judge Clement, some percentage of accrual claims well north of 50% are inherently matched and not subject to Policy 495’s claim eroding methodologies.

Professional Judgment Required

Policy 495 contains seven tests, which if tripped, should result in a claim being set aside for “further matching analysis” to determine whether the claim should be processed under one of the Policy 495 methodologies (AVM, Construction, Professional Services, Agriculture, or Education) or revert to the original Exhibit 4C formula. After one or more of the tests are tripped:

“Accounting Vendors will exercise their professional judgment to determine whether that claim is ‘sufficiently matched’ based upon the evaluation of the information submitted and available to them, including, when applicable, the nature and complexity of the industry or business in question, particularly with regard to claims based upon cash-basis accounting records.” – Policy 495 at 6 (emphasis added)

The occurrence of a trigger(s) in and of itself is not what determines whether a claim is supported by insufficiently matched P&Ls. The trigger event simply flags the P&Ls for further scrutiny. It is only through the “exercise of professional judgment” subsequent to a trigger event that a claim’s insufficient matching status may be determined, with cash basis records subjected to heightened scrutiny (which implies deference for accrual P&Ls).

In addition, if none of the triggers are tripped, there is a presumption that the subject P&Ls are sufficiently matched (Policy 495 at 6). Tellingly, there is no similar presumption that P&Ls are insufficiently matched when one or more of the triggers are tripped.  Again, in that instance, only the exercise of professional judgement can determine same.

Finally, the accounting vendors are to document the exercise of their professional judgment in the claimant’s file:

“The claimant’s file will be appropriately and reasonably documented to reflect the basis for the exercise of professional judgment by the CSSP Accounting Vendors as to material matters in the identification and resolution of matching issues.” – Policy 495, Footnote 4

Pavlov’s Bell

The requirement to “appropriately and reasonably” document the “exercise of professional judgment” is not satisfied by simply regurgitating which of the seven tests were triggered, as the mere occurrence of a trigger event is not determinative of insufficient matching, particularly as to accrual based claims. Yet recent experience suggests that the accounting vendors are indeed relying 100% on the seven tests to determine insufficiency – not the exercise of their learned, professional judgment as required. This rote reaction is particularly troublesome as the tests are overly-inclusive, capturing upwards of 90% of all claims in their nets, cash and accrual.

"... 'matching' [of] revenues and expenses, ... is a fundamental aspect of day-to-day record keeping on the accrual-basis.” - Judge Clement, October 2, 2013 Opinion in 13-30315
“… ‘matching’ [of] revenues and expenses … is a fundamental aspect of day-to-day record keeping on the accrual-basis.” – Judge Clement, October 2, 2013 Opinion in 13-30315
The vendors’ Pavlovian response to the occurrence of a trigger is in clear contravention of Policy 495. And if indeed the practice is to rely exclusively on the tests to determine whether a P&L is insufficiently matched, (abdicating the duty to exercise professional judgement), then “ordinarily” the “vast majority” of accrual based claims will not be deemed sufficiently matched, as perhaps 90% of them will trigger at least one of the seven overly-inclusive tests.

This result should surprise Judges Barbier and Clement, as it is the polar opposite of what their courts require, will wipe out several billion dollars in legitimate claims, and will result in a gross miscarriage of justice. Policy 495 was developed to identify and reign in the occasional outlier claim (or put another way, the “inevitable concomitant of an objective quantitative, data-based test”), not to wrongly decimate the vast majority (application of Policy 495 generally reduces claim value and sometimes eliminates causation).

What’s the fix?

First, the Claims Administrator should release the percentage of accrual based claims that trip one or more of the seven triggers. Second, administration officials should determine how many of those flagged accrual claims are ultimately deemed insufficiently matched. I suspect it will be the vast majority of that subset, if not 100%. If this is indeed the case, we will have confirmation that the accounting vendors are systematically failing to exercise their professional judgment, instead substituting the seven tests for same.

Accountants by their nature are conservative. Some employed by the Claims Administration come from the insurance world of claims adjusting, where they are conditioned to minimize compensation. The opposite should be the case here. The BP Deepwater Horizon Settlement Agreement explicitly tasks the Claims Administration and its vendors with the fiduciary duty of maximizing claimant compensation, not eviscerating it:

“The Claims Administration Vendors shall evaluate and process the information in the completed Claim Form and all supporting documentation under the terms in the Economic Damage Claim Process to produce the greatest economic damage compensation amount that such information and supporting documentation allows under the terms of the economic damage claim framework.” Settlement Agreement, Section 4.3.8 (emphasis added)

Wrongly applying Policy 495’s methodologies to P&Ls that are at the outset inherently matched (the “vast majority” of accrual BP claims), rather than utilizing the original causation and compensation formulas found in Settlement Agreement Exhibits 4B and 4C, violates the Claims Administration’s fiduciary duty to maximize claimant compensation.


  1. Gravatar for Ron

    Do you expect Judge Barbier to assess the damages of opt-out plaintiffs who present their damage evidence to him in the same meticulous way the accounting vendors are assessing the damage claims of the settlement claimants under Policy 495?

  2. Gravatar for LWJ

    Great article Tom. The sad part is that they seem to have no problems whatsoever exercising their professional judgment to deem a claim not sufficiently matched when NONE of the seven criteria are triggered. So, their approach thus far is to do everything in their power to not allow any claims to proceed without subjected to one of the 495 methodologies. That's one problem. Another problem is the reviewers disregarding what "matching" is all about (ie, whether revenues are booked in the same month as the expenses that led to the revenues) and instead apply it as if "matching" was about eliminating fluctuations in revenues by reallocation to other months without taking into account which months contain "corresponding variable expenses." They think "matching" equals "smoothing," and you can't get a straight answer out of them when you point that out and ask why they are spreading revenues evenly over 12 months. They are creating subcategories of claimants under each of the court approved industry methods without any authorization from the court to treat claimants who fall into the same method differently than others falling under that same methodology.

    1. The 5th Circuit clearly said "smoothing" was not permitted:

      "BP’s primary concern seems to be the uneven cash flows of certain types of businesses. We accept this possibility, but we see nothing in the agreement that provides a basis for BP’s interpretation. Despite the potential existence of this kind of distortion, the parties may not have considered it, agreed to ignore it, or failed for other reasons to provide clearly for this eventuality. The district court was correct that BP’s proposed interpretation [smoothing] is not what the parties agreed." - Judge Clement, Opinion in 13-30315 at 25 (emphasis added)

      The aim is not to smooth revenues in businesses with "uneven cash flows," but rather to sufficiently match expenses with their corresponding revenues. The crux of the 5th Circuit appeal dealt with interpreting what was meant by "corresponding." That word is found only in the compensation Exhibit 4C, not the causation framework in Exhibit 4B.

  3. Gravatar for eyeswideopen

    Policy 495 is flawed along with the triggers points.

    These triggers fail to recognize that most businesses are seasonal or the sales are uncontrollable for a variety of factors not by how the claimant maintains their books.

    Example: A restaurant being located in a tourism based town will experience what the court vendors refer to as “anomalies” this then trigger a smoothing or AVM under 495. These are simply explained as a good month, perfect weather conditions and/or daily specials that was identified as filling a need created as a value. ( Item 7)

    The 7 triggers listed below was designed to catch every possible claim in this trap. When in fact the settlement had built one system to encompass all class members with similar situated claims and insure they receive equal treatment.

    1.negative total revenue is recorded for any month included within the Benchmark Year(s), Compensation Year or 2011; revenue recorded in any month included in the Benchmark Year(s), Compensation Year or 2011 exceeds 20% of the claimant’s annual revenue for the year which includes that month;

    3.the monthly profit and loss statements or other documentation submitted shows that the claimant’s business experienced a period of dormancy

    during the Benchmark Year(s), Compensation Year or 2011; variable expenses when summed up are negative for any month within the Benchmark Year(s) or Compensation Year; variable expenses for any month within the Benchmark Year(s) or Compensation Year exceed 25% of the claimant’s annual variable expense for the year which includes that month;

    6.variable margin percentages when compared between any two months included within the Benchmark Year(s) and Compensation Year vary by

    more than 50 percentage points; or, any given month within the Benchmark Year(s) or Compensation Year, the variance between that month’s percentage of annual revenues as compared to that same month’s percentage of annual variable expenses exceeds 8 percentage points.

    Policy 495 if left intact reduces payouts, denies once satisfied causation test and pays similar situated class members differently based on how the court vendors decided to process or hold back determinations.

    1. This is why we must insist that the accounting vendors exercise their professional judgment as required, by "appropriately and reasonably" documenting and defending their determinations in the claimant's file. Just saying "P&Ls triggered test numbers 2 and 6" is not sufficient. The nuances you reference with regard to seasonality, industry, etc must be considered by the vendors - it is the very raison d'être for the requirement that they "exercise professional judgment." The mechanical, knee-jerk determination that a claim is "insufficiently matched" solely based on a trigger(s) event violates Policy 495 as written as well as the dictates of both the trial and appellate courts.

  4. Gravatar for Anthony


    What are your thoughts on Policy 70 and the numerous 4506 form requests. I have a few BEL claims that made it past QA and are now stuck in this eternal Policy 70 review.

  5. Gravatar for Eyeswideopen

    For anyone who thinks BP is the victim of Kenneth Fienberg’s generosity read below. This is the case for 200,000 fraudulently induced to sign a GCCF release.

    Appeal decision 2015-209

    Claimant, owner of a vacation beach house in Zone A (St. Pete Beach, Fl.), appeals pro se its twice-denied BEL claim. The record shows (and Claimant admits in its Program claim form) that Claimant made a claim with the Program's predecessor, GCCF, was paid a Quick Payment sum of $25,000 and signed the standard Release and Covenant Not To Sue.

    It now makes a BEL claim on the basis of the property's alleged diminished value and loss of rental income. As the Administrator correctly found, the Agreement, at Sec. 2.2.6, disqualifies from this Program all those who received payment under the GCCF and signed a Release. This is precisely what occurred in this case. While this panelist can appreciate Claimant's frustration with its net loss of value and rental, we are bound to apply the provisions of this Agreement, and must therefore affirm the Claim's denial.

  6. Gravatar for Wilson

    As a CPA, I am just absolutely floored with the blantant disregard of basic accounting principals and of various directives from the courts. Not to mention the complete absence of any common sense or consideration of fairness based on the intentions of the court. There are so many different accounting issues involved with this settlement, with many of them not having a right or wrong, black & white answer. This is especially true when the original mindset was completely geared towards annual accounting and not monthly. In order for the settlement to work and make any sense at all, the various calculations and the general claims process, needs to be logical, at least to some basic degree.

    A couple quotes come to mind:

    “When dealing with people, remember you are not dealing with creatures of logic, but with creatures bristling with prejudice and motivated by pride and vanity.”

    ― Dale Carnegie

    “I am convinced that the act of thinking logically cannot possibly be natural to the human mind. If it were, then mathematics would be everybody's easiest course at school and our species would not have taken several millennia to figure out the scientific method.”

    ― Neil deGrasse Tyson

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