PwC on trial
The case between the bankruptcy trustee of Taylor, Bean & Whitaker and PwC rolls on and yesterday, the Financial Times ran a profile of Steven Thomas, the plaintiff's attorney. It has all the anecdotes of a typical profile: Thomas grew up in a Missouri town "so small it didn’t have a stop light"; after his first big win against BDO, he left Sullivan & Cromwell only to have the firm sue him over splitting the fees; he runs his firm out of beach house, drives a Cadillac, etc. etc.
And of course it provides an example of Thomas's professional chops, which is grilling auditors about their jobs:
There was a good example last week in Miami when Mr Thomas called a PwC partner to the stand to grill him over what he understood to be a “red flag” in the context of an audit. In a videotaped deposition, the partner said he was “not familiar” with the term. On the stand he said “the first thing” that came to mind was a flag on a beach to warn away swimmers.
“What I’m saying is the term ‘red flag’ is not in the auditing literature,” said the partner, Gary Westbrook, according to court transcripts. “That’s not something that we use . . . to describe any issue.”
Mr Thomas then produced an email from Mr Westbrook’s audit manager and an official PwC workpaper for the Colonial account, both of which used the term. Displaying the workpaper, he asked Mr Westbrook to explain a small icon — a red flag — at the foot of it. The auditor called it a “tick mark”.
Perhaps I'm wrong, but if you're a partner in a Big 4 firm, isn't part of your job to think about how a litigator would question your work? If I was in charge of training at a Big 4 firm, I'd develop an annual seminar where an actor pretending to be Tom Cruise from A Few Good Men shouts questions at partners about their engagements. If you're in L&D and have already developed this course, please send me the syllabus.
In any case, Thomas is widely respected for his work, but he does have his detractors:
Some opponents cry foul, saying that Mr Thomas and his small team have prospered by exploiting jurors’ ignorance of the way auditors go about their work. “An audit is not a forensic exercise, yet he argues this is CSI Miami,” complains Karen Bitar of Seyfarth Shaw in New York, who came up against him in the BDO case.
It's true, financial statement audits are not forensic in nature. However, I'm certain that throwing around corny one-liners expecting a howl to drop right on cue is how most audit partners go about their day.
The Grand Plug
It's no secret that government accounting is, shall we say, suspect. The Department of Defense has had notable examples in the past and news of the US Army's adjustments from last week is not going to help that reputation:
The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.
The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.
When the numbers are this big, are they even real? I know that they're real in the very real sense that tax dollars are withheld from our paychecks and we have no idea where they go, but the concept of a trillion dollars is a hard thing to put into context.
Imagine being an accountant looking at these numbers and trying to make sense of it. It's a fool's errand if I've ever heard of one and it seems they knew it:
Some employees of the Defense Finance and Accounting Services (DFAS), which handles a wide range of Defense Department accounting services, referred sardonically to preparation of the Army’s year-end statements as “the grand plug,” [Jack Armstrong, a former Defense Inspector General official] said. “Plug” is accounting jargon for inserting made-up numbers.
I love it. At a certain point, you have to have a sense of humor about these things.
Has Donald Trump released his tax returns?
Nope! But former IRS Commissioner Fred Goldberg says he has no excuse for not doing so. As if DJT has an excuse for anything he does. I'm fairly certain he's running on primatal instinct. Elsewhere in ugh: The Street has the same ideas about why he's not releasing them as everyone else.
Accountants behaving badly
I was in Lake Tahoe and Reno last week, so naturally I spent some time in a casino. At no point did it occur to me that any of the patrons were accountants gambling away embezzled funds, but I guess it's possible since many of these stories follow a pattern:
48-year-old Diane Eiler yesterday was also ordered to repay AgQuest Financial Services of Morgan more than 1.7 million dollars which she stole from them 2007 through last year. The former company accountant pleaded guilty to federal fraud charges in April. Court records show Eiler lost most of the money she stole gambling at tribal casinos.
Elsewhere in ABB: Ricker Brooks, an accountant in St. Louis, overstated the business expenses for his client, Zondra Jones. Client and accountant discussed the matter and ultimately decided to file the returns. And then:
Once the Internal Revenue Service began to investigate the returns, Brooks then prepared false 1099 forms and check schedules that falsely represented payments made by Jones’ business to employees. These documents were provided to the IRS by Jones, according to court documents.
Don't do that.
Previously, on Going Concern…
In other news:
- Apollo Global Settles Securities Case as S.E.C. Issues $53 Million Fine
- Companies Rethink Annual Pay Raises
- Giving Olympians A Special Tax Break Wins The Gold Medal Of Bad Ideas
- FASB Proposed Modifications to Hedge Accounting: Good Thing, Bad Thing, or Just a Thing?
- $1 million in stolen frozen eels.
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