The Public Company Accounting Oversight Board has announced a big settlement with Grant Thornton over quality control violations and audit failures. The firm was censured and agreed to pay a $1.5 million civil penalty.
The quality control violations related to the assignment of two Philadelphia-based partners to audits in 2013 when they had been cited for shoddy work in the past. The work on one, the audit of The Bancorp Inc., violated PCAOB standards. The partner on the job, David M. Burns, was also sanctioned and fined $15,000 for violating audit standards in the 2013 audit of Bancorp. Mr. Burns retired from Grant Thornton in July 2016.
You can read all the gory details if you like in the order, but the most interesting thing of note is GT’s acknowledgment that Mr. Burns’s workload was excessive but then failed to rectify the situation.
Can we get a show of hands from those who are surprised by this? … … … No? No one? Okay.
To make matters only slightly worse, resources on the Bancorp team were tight and got tighter:
An overworked partner who relies on his/her senior manager to keep things moving despite a leaner and greener staff? It’s hard to imagine a major firm that isn’t dealing with situations like this.
According to the PCAOB, the firm and Mr. Burns “failed to sufficiently consider red flags or contrary evidence indicating that certain commercial loans were impaired and relied on management representations without obtaining relevant and reliable evidence to corroborate those representations.” When Bancorp restated its results, its allowance for loan and leases increased by 98 percent for 2013 and 403 percent in 2012. Yikes.
As for the second partner (aka “Partner B”) mentioned in this order, the circumstances were a little different. Partner B still had a history of substandard work; however, the firm was putting pressure on this person to shape up. According to the order, GT put the partner on a performance improvement plan and that, as some of you know all too well, meant business:
This performance improvement plan sounds all well and good, but they didn’t make good on their threat until it was too late:
I suppose there are some takeaways, so here’s a few off the top: 1) Giving an overworked person more work is rarely a good idea; 2) A team that is strapped for resources will not become better if you further strap their resources; 3) If a person is struggling at their job, giving them more work is NOT the answer.
Plus, all the auditing stuff, of course. I think that covers it.