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Until recently, those units operated below the radar of outside auditor PricewaterhouseCoopers (News - Websites)and Tyco's internal audit staff -- and were not part of a massive internal investigation undertaken by Tyco last year in response to allegations of corporate fraud.

Tyco executives said its fire and security division alone has 300 entities with less than $10 million each in annual revenue.

Tyco on Wednesday disclosed accounting problems it uncovered at the fire and security division's European operations that will trigger up to $325 million in pre-tax charges. Tyco Chairman Edward Breen fired the division's top executive and said he was "disgusted" by the revelations.

"Our internal audit, our external audit, our control structure let us down," Tyco Chief Financial Officer David FitzPatrick told reporters on Thursday.

"That's why we're going through and scrubbing every balance sheet of every itty-bitty entity."

More accounting problems could be uncovered as Tyco reorganizes its ADT security alarm business overseas. In a number of European countries, Tyco said ADT units had not been following company accounting policies.

Tyco found financial results were inflated because ADT operations were not writing off the remaining balances of security equipment installed in houses where owners were no longer paying customers, FitzPatrick said.

"When you look at a lot of these entities, many of them were too small to either be on PwC's or internal audit's radar screen over the past few years," he said.

"And that's what we are in the process of changing. We need to go down to that next lowest level," he said.

Those problems were not discovered during an internal investigation conducted last year by lawyer David Boies.

An army of lawyers and accountants overseen by Boies spent 65,000 hours hunting for big-time accounting fraud and found none. The Boies accounting investigation and related legal work will cost Tyco $75 million to $100 million this year, according to company estimates. The Boies report was crucial in Tyco's successful sale of $4.5 billion in convertible debt earlier this year.

Reporters on Thursday asked Breen and FitzPatrick if they felt ripped off after shelling out millions of dollars for the Boies report.

"Clearly (the Boies investigation) did not touch on everything," Breen said. He did not criticize the probe, saying the Boies team looked mostly at big acquisitions, and identified lax controls at fire and security.

That's why Tyco decided to take a deeper look at an operation with $11 billion in annual revenue.

Tyco said it has an estimated 1,000 entities companywide that have profit-and-loss statements that need to be audited.

FitzPatrick said that even though Tyco's internal auditing staff has more than doubled from historical levels, the team still needs to be larger.

Tyco recently replaced the top executive of the internal audit program. The team had up to 30 people during the acquisition days of indicted former Chairman Dennis Kozlowski. But staff levels suffered when some members were pulled off internal audits to vet acquisition targets, according to people familiar with the operation.

Ravi Arcot, director of research at KYNEX, an independent convertible research firm in New Jersey, said the hedge funds that bought Tyco's debt and shorted the company's stock made money after Tyco shares plunged 12 percent on Thursday.