Category: Big 4

If it happens at a Big 4 accounting firm, we’re talking about it here.

Cuomo Checks Ernst & Young Off the Hit List

Or throws another scalp on the pile, whatever you prefer.

The Journal is obviously very cozy with the Governor-elect:

New York Attorney General Andrew Cuomo filed a lawsuit against Ernst & Young for civil fraud Tuesday, accusing one of the nation’s largest accounting firms of helping Lehman Brothers Holdings Inc. hide its financial weakness from investors for about seven years before the bank finally collapsed in September of 2008.

Ernst & Young knew about, supported and advised Lehman on its “Rs, a type of debt the bank took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.

“Ernst & Young substantially assisted Lehman Brothers Holdings Inc., now bankrupt, to engage in a massive accounting fraud,” Mr. Cuomo wrote in his complaint.

Now that the AG has pulled the trigger on this, we’re wondering what’s next. E&Y still isn’t talking, other than the statement they’ve been giving since the bankruptcy examiner’s report came out in March. One comment suggested a settlement in the nine figure range which would put them in proximity of the DOJ’s fine of KPMG back in 2005.

Colin Barr over a Fortune reports that Cuomo wants at least the audit fees back ($150 million, according to the complaint):

The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman’s aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.

“Our lawsuit seeks to recover the fees collected by Ernst & Young while it was supposed to be using accountable, honest measures to protect the public,” said Attorney General Andrew Cuomo.

Something tells us that Cuomo won’t be satisfied by simply the audit fees; we’re talking about the largest bankruptcy in history, after all. If you feel like ballparking the fine, we wouldn’t turn away any outlandish guesses.

UPDATE: Felix Salmon also points out E&Y’s lack of communicado:

E&Y knew this was coming—we all did—but despite that fact, its only public reaction so far has been to refuse to comment. That doesn’t look good, and it forces us back to what the company said in the wake of the Valukas report—that its work as Lehman auditor “met all applicable professional standards,” whatever that’s supposed to mean.

He also agrees with us that the fine will be greater than the $150 million and notes (not hiding his disappointment) that no partners were named, “E&Y will avoid admitting blame and also avoid criminal prosecution. […] [T]he only defendant is Ernst & Young LLP; there are no named individuals on the list. So E&Y’s partners are probably safe too. Sadly.”

Unless, of course, the SEC or PCAOB opt to take up that disciplinary slack. Don’t forget that some people think that Cuomo is making this move because he wants the “last scalp” before leaving the AG’s office for the Governor’s mansion. We realize pinning hopes on the SEC and PCAOB isn’t exactly comforting for those wishing to see more action but maybe Cuomo’s actions are the motivation they needed.

We’ll keep you updated throughout the day and if there’s any internal word from the hallowed walls of 5 Times Square, do email us the details.

Charlie Gasparino: Someone’s Holiday Vacation Is Holding Up the Ernst & Young Settlement Talks

The Fox Business Network ace reporter is saying that Cuomo & Co. would like to settle this thing up ASAP (a “quick scalp” before AC goes to Albany) however it is definitely not happening this week because, “According to people at Ernst & Young […] one of the lead investigators in Cuomo’s office is on vacation.”


Also interesting is that Chaz reports that E&Y thought there wasn’t going to be such a rush to get this thing settled but now everyone is all worked up because the story got leaked.

As for the SEC stuff, we don’t know what to make of it since there’s been hardly any news about talks between E&Y and the Commission. Francine McKenna told us that Gaspo “got a lot of smoke blown up his tush,” which is typical for reporters who cover Big 4 firms once in a lunar eclipse on the winter solstice.

Ernst & Young Partner May Have Known This Lehman Brothers Bankruptcy Situation Was Going to Get Worse

This was in January 2009 after the shit had hit the fan and E&Y’s partner on Lehman, Hillary Hansen, may have had an idea of how cozy she was going to get with bankruptcy examiners, the NYAG, SEC, PCAOB, etc.

Skip ahead to around 17:00 (you have to go to the website to watch) where Hansen says, “We audit Lehman Brothers, unfortunately,” to sparse chuckles.

Zero Hedge makes the case against E&Y (Hansen being the main culprit) in excruciating detail and thinks FSO might be down for the count:

[W]e are confident that (again, with the assumption that we live in some semblance of a sane/ration world), E&Y’s Financial Services Office is done (even despite such ironically apropos warnings on the firm’s website as “Top six liquidity risk management challenges for global banks “), and quite possibly the entire firm. Integrity is the number one currency for an auditor, and just like Anderson, E&Y’s just went out in a puff of green-colored smoke.

Big 4 Auditor Respectfully Requests an Audit of Big 4 “Compensation Studies”

From the mailbag:

Hey Caleb,

So recently I was found out that KPMG will be conducting a compensation study as to whether or not we are in line with “market” and the effects of the results, if any, will be announced mid-January. This came as the result of the follow up on the Mid-America senior council meeting. Apparently the question was raised in this meeting about why KPMG employees weren’t receiving bonuses similar to the other firms [Ed note: We received the following message prior to the announcement of KPMG’s new bonus program that we reported on Friday.]. During the follow-up call it was told that a “compensation study” was being performed.

I always hear all of the Big 4 talking about how they did a compensation study and found out they were in-line with the market but obviously after all of the posts about compensation raises and bonuses nothing seemed to be consistent. My question to you is where are all of these supposed studies done by the Big 4? They say they perform them but do we actually see them? As an auditor I’m inclined to ask where is the supporting documentation? We don’t take our clients word that they have $50 million in the bank we have to agree that to something, so why don’t we get some proof of this study or in your experience with goingconcern have you actually ever seen results of these studies?

Thanks,
Disgruntled Employee

Dear Disgruntled,

We understand your frustration with regards to these so-called compensation studies. To directly answer your question, we have not seen any of these studies nor do we know how the firms commission them. (If you are familiar, get in touch.) The transparency of the process, as you rightly point out, is virtually non-existent. While your call for more information regarding these studies may get some attention and even a brief consideration, don’t expect any “supporting documentation” in the near future. Keeping the compensation sausage recipe secret is advantageous for the firms and since “in-line with the market” is another way of saying, “right in the meaty part of the curve” people have very little room to complain.

Now, if it appears that one firm say, PwC, is compensating employees in a more generous manner than say, KPMG, the only way to conclude that for certain is to speak to a recruiter who talks to employees from both firms. Sure you can mine the comments of posts here or read Bob Half’s salary report to get an idea of what’s what but if you want to know the actual compensation disparity between two firms (especially for your skill set), you’ll have to do a little digging for yourself.

So, do you have the right to be annoyed by the lack of information around these studies? Of course. But don’t expect an in-depth breakdown firm by firm to be presented at your next townhall or webcast.

(UPDATE) Early More Chatter on the Ernst & Young Civil Charges

As we mentioned earlier, the Wall St. Journal has reported that out-going New York Attorney General Andrew Cuomo will be filing civil fraud charges against Ernst & Young related to its actions (mostly lack thereof) that led to the Lehman Brothers bankruptcy. Charges are expected this week but everyone is talking about it now obviously (and we were hoping for a quiet week).

Anyhoo, we’ve rounded up some of the early sound blog bites out there and we’ll keep you updated throughout the day. Of course, if you’re with E&Y and have any insight or hear some calming, soothing words from TPTB, email us t��������������������ore–>
In her column at Forbes, Francine McKenna is happy that Andrew Cuomo is actually doing something, which is more than can be said for the Feds:

Whether Cuomo is doing this on his own, in defiance of the Feds, or has their implicit blessing in light of the Federal Government’s seeming unwillingness to act, New York’s Attorney General is showing the world he’s the only one in the US with the nerve to shake this tree.

Fox News’s Greta Van Susteren is not so impressed, saying criminal charges are really what’s needed:

Attorney General Andrew Cuomo needs to get tough instead of this “window dressing” CIVIL business. He is soon to be the Governor of NYC and this is his last act as the State’s Attorney General. I hope this is not to appease Wall Street. Let a jury decide whether is is criminal behavior or not and whether anyone has committed a crime. As it stands now, Cuomo is blocking that determination with only civil charges.

Felix Salmon postulates that Cuomo is using the possibility of criminal charges to scare E&Y into a settlement:

On the other hand, a civil fraud suit is not a criminal prosecution. Even if E&Y fights the charges and loses, it probably won’t find itself on the receiving end of the kind of criminal charges which brought down Andersen. Still, I’m sure that Cuomo’s office is doing nothing to downplay the contingent existential threat here, in its negotiations with E&Y.

Yves Smith at Naked Capitalism is practically giddy and hopes that this will turn up the heat on Dick Fuld:

One can only hope turning up the heat on Ernst & Young will lead to the prosecution of Richard Fuld. The buck is supposed to stop with the CEO, particularly when they are paid as many bucks as Fuld received. Given the scale of looting that took place in the runup to and after the crisis, there is no hope of getting the banking industry back in its proper role of supporting the real economy until we see some senior bank executives in orange jumpsuits.

CNBC’s John Carney thinks that execs at both Lehman and E&Y should take the civil charges as good sign:

Why should executives at Lehman and Ernst & Young be relieved? Because the filing of civil charges rather than criminal charges may signal that prosecutors do not believe they can prove a criminal case. The key difference between criminal and civil charges in these contexts is the quality of evidence and it looks as if New York Attorney General Andrew Cuomo’s office has decided it doesn’t have the evidence to prove a criminal case beyond a reasonable doubt.

Fortune’s Colin Barr is appalled that E&Y’s Global CEO Jim Turley believes that there wasn’t any chicanery going on:

Take this exchange between E&Y chief Jim Turley and Fortune’s Geoff Colvin, from a September interview.

Colvin: Would it be fair to say that the crisis was caused in part by some financial firms doing misleading things that were within the rules?

Turley: I don’t know that it would be fair to say they were doing misleading things.

It’s remarkable Turley would still say that two months after the financial firm of the best and the brightest, Goldman Sachs (GS), agreed to pay $550 million to settle Securities and Exchange Commission charges that it misled investors in a bubble-era debt deal. The auditors weren’t involved in that one, but the Wall Street mindset was pretty obvious to everyone not running an audit firm.

Over at DealBook, Peter Henning has an interesting theory that the NYAG could be going after the accountants while the SEC focuses on individuals:

If the S.E.C. agreed to share the Lehman case with the New York attorney general, then it may be that the state took the accountants as the focus of its investigation while the federal government concentrates on individuals. Such a division of labor would allow each to husband resources by avoiding any duplication of effort in the investigation – and may be the reason the state is planning to file charges before the S.E.C. decides to act.

Emily Chasan at Reuters managed to get a statement out of someone (Charlie Perkins’s phone has likely exploded by now) although the firm is sticking to the talking points:

A spokeswoman for Ernst & Young said the company did not comment on speculation and repeated a previous statement made by the firm about its dealings with Lehman Brothers. “Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” the statement said.

Matt Taibbi (whole post is worth a read) is calling for the paramedics:

My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible. Without accountants and raters signing off on all the bogus derivative math and bad bookkeeping, a lot of this mess would never have happened.

We’ll be updating this post with more reactions and as things develop.

Marin County Adds ‘Racketeering’ to the List of Allegations Against Deloitte

Hell hath no fury like an obscure California county that feels completely gypped (to the point that they feel it’s fraudulent) by the largest professional services on Earth.

Marin officials fired another salvo in an escalating $105 million legal war with international computer consultants, filing a new lawsuit Thursday accusing them and a former county official of violating racketeering law in a bid to rip off taxpayers.

The new suit was filed against Deloitte Consultant LLP, software developer SAP and former assistant auditor-controller Ernest Culver, who served as project director of the county’s troubled computer installation before quitting to join SAP.

As you may recall, Marin County’s original suit against Deloitte for $35 million involved allegations of “fraud, misconduct and misrepresentation” which included using ‘neophytes’ on the implementation of the county’s ERP system. The new racketeering charges are especially interesting and the Marin Independent Journal has the details:

It alleges a conspiracy, asserting consultants wined and dined Culver and interviewed him for employment at the same time Culver was approving deficient work on the project, approving fee payments and helping line up new contracts.

“County taxpayers were charged for millions of dollars in services that Deloitte failed to properly perform” and residents were “defrauded of the honest services of a high-ranking county official,” according to County Counsel Patrick Faulkner.

Deloitte denied the allegations of the original suit, saying that Marin County was actually responsible for the snafu. However, and unfortunately for Deloitte, new shit has come to light:

Faulkner disclosed that the county has combed through its computer system to retrieve thousands of e-mails issued by consultants and Culver while they worked in county offices, providing a backbone for accusations leveled by the latest suit.

The complaint alleges six violations of the federal Racketeering Influenced and Corrupt Organizations Act by Deloitte and SAP, and three counts of illegal conduct against Culver, including a violation of the state anti-corruption statute.

So it doesn’t sound like there’s a smoking gun per se but enough back and forth that adds up to this:

The lawsuit, the county said in a press release issued late Thursday, claims that when problems with Deloitte’s work surfaced, Deloitte and SAP engaged in a “cover-up that included bribing Culver to falsely ‘approve’ Deloitte’s defective work, and silencing an SAP employee who tried to intervene on the county’s behalf.”

So, in other words, pretty bad stuff. The MIJ reports that “Settlement talks are expected and while the parties remain at odds, the latest court filing could spur negotiations.” Using our best translation skills, this more or less says, “Deloitte, SAP and Culver realize they’re fucked – begrudgingly – and will be going to the table any day now to sort things out.”

The Independent Journal also reports that SAP, Deloitte or Ernest Culver “could not immediately be reached.” Our own messages with Deloitte spokemen Jonathan Gandal and John La Place were also not immediately returned.

Marin County alleges racketeering in new lawsuit over computer debacle [MIJ]

Is There a Polite Way to Quit During Busy Season?

Welcome to the one-week-of-mall-madness-left edition of Accounting Career Emergencies. In today’s edition, a new hire is ready quit her Big 4 gig after three months on the job. Is there a nice way to do this during busy season?

Freaked out over your first busy season and need medication suggestions? Concerned about the lack of communication in your office? Curious about the drawbacks of a landing ��������������������ignificant other? Email us at advice@goingconcern.com and we’ll tell you what’s what.

Back to fed up in Big 4:

Hi,

I’m a recent new hire at a big 4 firm in LA, and I’ve been working for the firm since October. I’m hating the job and already want to quit. I’m currently looking for jobs as we speak. Is it inappropriate to quit during busy season? How do I do so in a “polite” way?

Thanks for the advice,
HatingMyJob


Dear HatingMyJob,

Your dilemma is not uncommon but we are curious as why you would accept a job that, at least semi-consciously, you already hated before you started. You essentially took a job from someone else that probably would sacrifice an appendage for the opportunity you have.

Now that we have sufficiently guilt-tripped you, we’ll address your problem. Way back in February, we addressed this very issue and here are a few thoughts we had then:

All the people we’ve had the pleasure of working with, despite all of them having multiple “F— THIS!” moments, pull it together because they have a job to do. Why the hell didn’t you quit prior to busy season? You really felt like sticking it to everyone?

Fine. Perhaps your desire for sweet, sweet revenge against your senior/manager/partner/firm is more powerful than any shred of integrity you may have but for crissakes, that makes you a very bitter person. More so than the average accountant.

We’re not sure what has happened in the last 10-ish months but we’ve mellowed on this position. That being said, we’re putting you on notice, regardless of whether you quit now (pre-busy season) or in mid-February, people will be JUDGING YOUR ASS. We’re not talking Chief Justice judging, we’re talking the WRATH OF THE ALMIGHTY judging (if your an atheist, think of it this way – science will get medieval on you with Lou Gehrig’s or something else sufficiently terrible). Hopefully you’re okay with that because your ears will be burning.

Accordingly, there’s no reason for you to worry about being polite about it. In fact, you’re better off admitting that you hate the job (feel free to get specific) and it isn’t for you. That involves you admitting that you made a mistake but hey, we all make them. It may save you a little face with some of your colleagues.

The good news is, your recruiter – if you’re using one – is going to be able to help you more during busy season because they won’t have a backlog of people burning up their phones with, “For the love of GOD, get me out of this job!” If you’re not using a recruiter, we suggest you find one and level with them about your situation. You’re not desperate but you want out ASAP. The process takes a little bit of time and you’ll be ahead of the people that choose to battle out busy season.

So, if you’re fed up. Fine. Nothing you can do to change that. If you’re looking, that’s good; you’ll have a leg up on the new associates that decide to leave after busy season. Good luck.

Bonus Watch ’10: KPMG Announces Mid-year and Year-end Bonuses for Exceeding Chargeable Hour Targets

Fresh off yesterday’s news of an improved FYE ’10 (and possibly more red meat!), KPMG announces their mid-year surprise. This should make busy season interesting, no?

New Above & Beyond Award for Staff Linked to Chargeable Hours
A Message from Jim Liddy, P. Scott Ozanus, and Mark Goodburn
8:11 AM ET, December 17, 2010

As we near the end of the first quarter of FY11, we are pleased to report that the firm’s business strategy is working well and yielding financial results that exceed our operating plan.

We are busy across Audit, Tax, and Advisory, with many of our client service professionals—especially staff—working particularly hard. While we are increasing our hiring efforts to meet the demand for our services, we also feel that it is important to recognize and reward outstanding efforts of our team members.

To this end, we are introducing a new Above & Beyond award that will provide all eligible Audit, Tax, and Advisory associates and senior associates who exceed chargeable hour targets with meaningful FY11 cash awards.

Above & Beyond awards will be paid in April 2011 and October 2011 and will be in addition to any year-end variable compensation or merit increases.

More details about the program, including award amounts, chargeability thresholds, and program guidelines will be communicated functionally by January 5.

The Above & Beyond award recognizes associates and senior associates for extraordinary effort while we continue to address our resource needs. And, in line with our compensation philosophy we will continue to monitor the marketplace to ensure that all our people are provided with competitive compensation that differentiates exceptional performers with superior rewards.

Our commitment to the highest-quality service to our clients requires that each one of us continues to do our best work and meet our objectives. Thanks again for your continued hard work, your outstanding contributions, and for all you do to help our firm succeed!

So, House of Klynveld pre-managers, what’s the consensus? It’s an extra bonus, paid twice, all practices are eligible and the firm will “continue to monitor the marketplace” (translation: read Going Concern) to make sure things stay competitive. It seems like a decent deal, although the award amounts are TBD. The only problem that we foresee is the time-honored tradition of some people putting in face time merely to run up their hours. Granted, budgets should help self-regulate that phenomenon but we all know how well that works.

Anyway, discuss your thoughts and let us know when you hear the award amounts.

Could KPMG’s Improved Revenue Mean More Omaha Steaks for Employees?

Yes, that’s a question for the group. But first, we should mention that despite the glaring lack of exclamation points, you can’t help but think that T Fly is running around 345 Park (or wherever he puts his feet up these days – is he in A/dam?) high-fiving everyone that crosses his path about the slight uptick in this year’s results:

AMSTERDAM, Dec. 16, 2010 /PRNewswire/ — KPMG, the global network of professional services firms providing Audit, Tax and Advisory services, today announced member firm combined revenues totaling US$20.63 billion for the fiscal year ending September 30, 2010, versus US$20.11 billion for the prior fiscal year, representing a 2.6 percent increase in U.S. dollars; a 0.1 percent increase in local currency terms.

“These combined FY10 revenues overall reflect positive and improving business performance across the KPMG network of firms and functional businesses worldwide,” said Timothy P. Flynn, Chairman of KPMG International.

“This improvement underscores the strength of our brand and that, in a significantly changing economic and regulatory environment, clients and stakeholders value how the high-performing people of KPMG are cutting through complexity, delivering informed perspectives and clear solutions to them,” he said.

And if it wasn’t for Google – GOOGLE! – the House of Klynveld would be the idealist employer on the globe!

Flynn added, “KPMG was pleased to be honored by Universum, the global talent consultant, this year for its ability to attract the very best people. Universum announced that students worldwide ranked the KPMG network globally second, behind only Google, as an ‘ideal’ employer. This is strong affirmation of our priority to making KPMG a magnet for talent and a place where people can maximize their potential.

“The caliber of talent is a true differentiator among professional services firms in the global marketplace, and KPMG member firms worldwide will continue to invest in their people in the year ahead, attracting the best and most diverse talent. Our growth plans call for us to recruit approximately 250,000 people over the next five years,” Flynn said.

Whether “recruit approximately 250,000 people over the next five years” actually translates to putting asses in the cubicles, will remain another matter since every firm on Earth claims to ratcheting the hiring up a notch. Anyway, feel free to discuss whatever you like related to the Radio Station revenue results, including the likelihood of more bovine flesh in your future.

Big 4 Shoots Blanks on Glassdoor 50 Best Places to Work

The following was brought to our attention this morning:

Glassdoor just published their 50 best places to work… and I believe none of the Big 4 are on it. Surprise surprise?


So we checked it out and yes, it’s true that none of the Big 4 (or any accounting firm for that matter) appear on the Glassdoor 50 Employees’ Choice Awards for 2011.

It’s worth noting however, that the methodology for this particular list is driven entirely by audience participation. From the FAQs:

The Glassdoor list is the only list that truly represents employees’ choice. Unlike many workplace-related awards that require companies to self nominate, Glassdoor relies solely on the input from employees. All that is required for consideration is an employer must have had at least 25 employees complete a survey to be considered.

So you could probably conclude one of a two things: a) Fewer than 25 employees of each firm bothered to visit Glassdoor to sing their firm’s praises or b) the reviews were so incredibly negative that the firms landed nowhere near the Top 50.

Now, possibility “a” seems unlikely since there are plenty of people working at these firms that don’t have anything better to do than mindlessly surf the web and participate in seemingly innocuous surveys and whatnot. Possibility “b” seems a little more realistic, so we’ll explain our thinking:

Since this particular list doesn’t have an application process, it is merely up to some ambitious person in the marketing/Internet reputation department to take the initiative to spread the word about this campaign TO EVERYONE IN THEIR OFFICE. Besides the fact that asking employees to add one more thing to their already-impossible-to-conquer “to-do list,” these types of emails are largely met with eyerolls that would cause most people to topple over backwards in their chairs. But rather than simply delete the message, this wells up so much annoyed rage within the bitter Big 4 Bobs/Betsys out there that they immediately proceed to the survey to crucify their firm out of spite.

Or then again, maybe we’re just cynical. If you’ve got your own theory, do share.