Tag: Ernst & Young

The Grant Thornton ‘Global Six’ Campaign Has Hit a Snag

Thumbnail image for Thumbnail image for Grant-thornton-logo.JPGGrant Thornton’s global revenue results have yet to come out, however the Times Online is reporting lower UK revenues for the past fiscal year. This widens the gap between GT and Big 4 and possibly jeopardizes any hope of the ‘Global Six’ moniker making it into the mainstream.


This despite their ambitious efforts:

Two years ago, Grant Thornton unveiled ambitious plans to increase revenue to £500 million. It had just acquired RSM Robson Rhodes and appeared set for rapid growth. There was talk that it could close the distance on Ernst & Young and break the Big Four’s lock on blue-chip audit and advisory work.

This, as the Times notes, appears to be only a pipe dream now. They dish a little gossip about GT merging with E&Y which was de-nied pretty adamantly by the UK CEO, ‘That’s absolutely not true and I’ve no idea where it comes from.’
We really wish we could take credit for starting that rumor but alas, we can’t. Furthermore, it wouldn’t be the same if GT had to merge with someone. It is, however, worth speculating if any type of semi-mega merger would even be possible. We touched on this topic some time ago but that was for sport so we’re asking for serious speculation now.
If you’ve heard merger talk at any of your firms discuss — or just wonder aloud about which firms would/could/should get together — in the comments and feel free to opine on GT’s latest efforts in the Global Six campaign.
Grant Thornton slips further behind the Big Four [Times Online]

Ernst & Young and McGladrey & Pullen Both Have a Petters Problem

In last Tuesday’s Preliminary Analytics we mentioned the case of Tom Petters, the Minnesota businessman accused of running a multi-billion dollar Ponzi scheme.

The trial is in its first week and already there has been testimony from the star witness — Petters’ former office manager — that included a recording of Petters saying ‘This is one bi his own defense counsel comparing him to a cocker spaniel:

[Defense counsel, John] Hopeman countered that while Petters was an accomplished salesman, he didn’t have the corporate skills necessary to run companies.
“He has the attention span of a cocker spaniel — about 15 seconds,” the defense lawyer told the 10-woman, six-man jury. “He couldn’t read a whole book if his life depended on it.”

Okay, a couple things before we get to the crux.

• Most cocker spaniels we know have attention spans exponentially longer than fifteen seconds. It would be much more believable if defense counsel had said, “He has the attention span of a pomeranian and you can’t leave him home alone or he’s eats the furniture.”

• Petters couldn’t read a whole book if his life depended on it? Are we talking classic literature? Because if we are, then he’s got company. What about children’s books? Do magazines count? He strikes as a guy that could at least make it through the pro football season preview.

Moving on…

Now that the trial is underway we’ll be following the more interesting developments in the case but we’ll be especially interested in the litigation involving the auditors of the hedge funds that cycled funds to Petters’ businesses.
There is pending litigation in Texas that involves both Ernst & Young and McGladrey & Pullen related to the audits the two firms performed for feeder funds for Petters’ businesses.

These feeder funds received purchase orders for high-end electronics from Petters’ businesses that were seemingly made by big-box retailers such as CostCo. The feeder funds then solicited money from investors, including the plaintiffs in the case, in return for promissory notes for Petters’ businesses. The merchandise on the purchase orders secured the notes. Allegedly, there was no merchandise and Petters used the money received to pay off other investors who were looking to get out and so on and so forth.

The feeder funds that are the defendants in this case are Arrowhead Capital Partners II, L.P. of Minnetonka, Minnesota, Palm Beach Finance Partners, L.P. and Palm Beach Finance Partners II, L.P. of Palm Beach Gardens, Florida, and Stewardship Credit Arbitrage Fund, LLC of Greenwich, Connecticut. The general partners and investment managers of these funds are also listed as defendants.

E&Y served as auditors for Stewardship while M&P served as the auditors of Arrowhead. A small Florida firm, Kaufman, Rossin, & Co., P.A. served as the auditors for the two Palm Beach funds. The firms are being sued, naturally, for not detecting the alleged fraud. In this case, however, the firms may have it coming since the fraud was run by someone with the alleged attention span of a canine.

We spoke with Guy Hohmann, who is representing the plaintiffs in this case, and according to Mr. Hohmann, M&P has the most significant exposure in the Petters case as they also served as the auditor for Lancelot Investors Fund and Colossus Capital Fund, L.P. both Oak Brook, Illinois based hedge funds. M&P also faces litigation from the investors of those funds in Illinois.

Lancelot’s Vice President of Finance was Harold Katz, who just pleaded guilty last month to one count of conspiracy to commit wire fraud. Mr. Hohmann was recently informed that before taking the job at Lancelot, Katz was a senior manager at M&P that worked on the Lancelot audit. M&P would not comment. It has been speculated now that Katz — who pleaded guilty September 2nd — is cooperating with authorities in the cases against Petters and Lancelot founder, Gregory Bell.

In another strange twist, Mr. Hohmann told GC that Lewis Freeman — the forensic accountant that is under federal investigation that we told you about last week — was appointed as the Chief Restructuring Officer of the Palm Beach funds. The Palm Beach funds are not currently listed as an active case on the forensic firm’s website.

We reached out to all the firms named in the lawsuit, McGladrey & Pullen declined to comment while calls to E&Y, Kaufman Rossin & Co., and Kenneth A. Welt, the current receiver listed on the Lewis Freeman website, were not returned.

According to the complaint, the amount lost by the plaintiffs was $24 million dollars, however, according to a October 6, 2008 Bloomberg article, the two Palm Beach Funds were responsible for approximately $1.1 billion of the alleged $3 billion the scheme while the Lancelot funds held approximately $1.0 billion with Petters. Mr. Hohmann’s understanding was that the Palm Beach funds had provided approximately $1.0 and that Lancelot held approximately $1.6 billion. Because of the complex web of companies in this case, the final dollar amounts may not ever be known.

So regardless of the fact that the case in Texas is in its early stages, future lawsuits from other investors could arise, and all three firms could continue to face significant litigation.

We’ll continue to keep you updated on any developments in the cases involving these accounting firms and will be following any noteworthy developments involving the Petters trial.

The case is SSR v. Arrowhead et al., District Court of Dallas County.
SSRvArrowhead.pdf

E&Y Partners Should Work on Their Ice Breakers Prior to Talking Layoffs

The Pacific Northwest Area leaders have a town hall meeting in the Area offices. The retiring Area Managing Partner and incoming partner both show videos of each other to “introduce” them to the little people. These videos brag about how one collects ferraris (shows other partner in his ferrari at the show room) and the other shows the incoming partner’s closet full of Jimmy Choo shoes. And the best part?? It was at this meeting where they tell people (everyone from admin to partners) that they are making 5% cuts in December…And then of course they proceed to go through multiple rounds of cuts – Dec, March, June and not sure if it is over.

We enjoy an Italian sports car as much as the next guy but for crissakes, using it to segue into layoffs? Do you think they ran this script by anyone or did they just wing it? If you’ve got other stories of tawdry behavior, by all means, pass them along.

Ernst & Young Has Another Vote Counting Gig

hairy-nascar-fan.jpgWAY more prestigious than the Emmys mind you. No, E&Y has now managed to snag the coveted honor of counting the votes for the inaugural NASCAR Hall of Fame class.
The other firms are, no doubt, insanely envious of E&Y for landing this prestigious gig but we have several important questions:


• Will the E&Y auditors have to memorize the winners and all of their sponsors?
• Shirts (let alone tuxedos) seem a little formal for a NASCAR event so what will the auditors wear?
• Instead of simply handcuffing the results to their wrists, will the auditors need guards armed with Desert Eagles to keep the crazies from highjacking the results?
• Instead of Dr. Horrible, who will make a special appearance to distract the audience during the explanation of the vote tabulation? Jeff Foxworthy seems too obvious.
• Will E&Y be paid in Bud Light as it seems to be accepted as legal tender in these circles?
Let us know your thoughts on E&Y’s new engagement and your ideas on responses to the questions posed above.
Hall of Fame Announcement Set For Wednesday [FanZone Sports]

Ernst & Young Performance Ratings Are Super Top Secret…Most of the Time

top secret.jpgOne of the most diabolical of human traits is wanting to know everybody else’s biz-nass. Shoe size, your number, how much money you make, etc.
Trusted friends and colleagues usually will share some of their professional details with you but several people remain prudish with their ratings, merit increases, salaries, etc.
Continued, after the jump


Then there’s your sworn enemies. These people wouldn’t tell you their date of birth if their high-flying, glamorous number crunching lives depended on it. Smug bastards think they’re so special, when YOU KNOW they suck it big time. Wouldn’t you LOVE to know how officially shitty they are at their jobs? We thought so. But dammit, being nosy is really hard work and that information is tough to get.
Well, according to one of our sources, some at E&Y didn’t have to try hard at all:

So about a month ago after the ratings for everyone’s annual review were finalized, someone in HR screwed [up] big time and sent an e-mail out to the entire Banking Capital Market mass e-mail and attached a spread sheet with EVERYONE’S rating. When I mean EVERYONE I mean from Staff 1 through Senior Manager.

We’ll go on record here to say that this was probably an honest mistake but the fallout from this had to be all sorts of awesome. Knowing how that stupid ass first year manager that totally screwed the pooch on your engagement was rated could either end up being the sweet vindication you’ve been waiting for or it could open up a basket of rage not seen since the Old Testament.
Hey, maybe we’ve misunderstood the whole thing. Maybe E&Y is considering some bizarre open door policy when it comes to ratings and this was merely a test. We’d love to see the list, btw, so if you’ve still got it, send it our way.
Feel free to discuss any additional details or your thoughts on your Firm’s ability to KEEP SECRETS in the comments.

Ernst & Young Paid $400 Million to Settle Akai

That’s according to reports from Asia Sentinel. The liquidator of the now bankrupt Akai also, “extracted US$100 million from a local tycoon, Ho Wing-0n, who had allegedly conspired with the then chairman of Akai, James Ting, to strip the company of its assets. Ho himself was a former partner at Ernst & Young until 1990 and has been responsible for the Akai audit.”

Sounds like a nice little back-slapping/glad-handing/ass-grabbing arrangement and depending on how things progress, sounds like another one may be in place:

The size of the settlement against Ernst & Young reflects not only the size of losses sustained by Akai creditors but the years of organised sleaze attributable to Ernst and Young’s Hong Kong operation. If the civil settlements are not followed up by vigorous criminal prosecutions by the Hong Kong authorities, one can conclude that mutual back-scratching and old-boy principles override issues of corporate governance and the responsibilities of auditors.

As you may have noticed, we’re big fans of speculation so, for now, we’ll go along with whole HK Fuzz and auditors back-scratching scenario presented here if no criminal charges arise. E&Y has continually reiterated their willingness to cooperate in the investigation so you can make up your minds on what that all really means.

The liquidator, Borelli Walsh seems to be the catalyst of this case as the Sentinel speculates that if, “it been one of the other of the Big Four auditing firms it is likely that some clubby backroom deal would have been done which would have kept criminal activities well hidden and involved a settlement a fraction of that obtained by Borrelli Walsh.”

‘Clubby backroom deal’? You mean those are real? We’d be curious to know if E&Y in the States has even brought this up internally to address the press coverage. If those of you in the Ernstiverse are getting love letters from JT on this, kindly pass them along or discuss in the comments.

No Accounting for Accountants [Asia Sentinel]

Earlier: Raid at E&Y Hong Kong Was Probably Really Boring
Earlier: EY Doesn’t Want to Be Outdone By Anyone So They Went to Hong Kong for a Scandal

Will Deloitte’s Diversity Push Work?

Thumbnail image for small salzberg.jpgAwhile back we told you about Salz’s dissatisfaction of the diversity at Deloitte, regardless of their long-standing commitment to it.
After the Web CPA piece, Dr. Phil is steppincussing Deloitte’s recruitment of students on community college campuses in last Friday’s Business Week. The article points out up front that, “Deloitte CEO Barry Salzberg likes to talk about the value of diversity. But of the 4,500 partners and other top executives at his firm, 92% are white.” We did the math, that’s less than 500 non-white partners.
So this is obviously a public relations problem that the firms would rather not have, since as we’ve noted, they love, love, love to point out how diverse they are, regardless of what others are saying. The facts simply seem to be that accounting, as an industry, doesn’t seem to be that diverse:
Continued, after the jump

For Deloitte, the hope is to reach high-potential people of color at community colleges, interest them in accounting, and then shepherd them through a university to a job upon graduation. If it works, it could turn around a troubling trend. In 2004, African Americans represented 1% of all CPAs, Latinos 3%, and Asians 4%, according to a U.S. Treasury Dept. report on the profession. By 2007 the figures were unchanged, if not down slightly.

Okay, so those numbers aren’t good for anyone. They’re especially not good for the image of the firms or the profession. Deloitte’s plan is to recruit on six community college campuses to try and convince the students that accounting is a kick ass career. Obviously that’s easier said than done:

Deloitte will have to do a fair amount of myth-busting. Many students believe accountants don green eyeshades and plunk away at calculators all day. So Deloitte is sending a brigade of up to eight staffers, including at least one senior partner, to enlighten, mentor, and ultimately guide potential recruits toward an accounting career. In visits to the campus classrooms, the partners plan to share workplace perspectives and explanations of how the industry has broadened to include financial, management, technology, and human capital consulting. “I don’t think students realize the vastness of what you can do in accounting,” says Gregory Brookins, a CPA and associate professor at Santa Monica Community College. “They feel like it’s a boring bean-counting job.”

‘They feel like it’s a boring bean-counting job’? GASP. How’d they get that impression?
Not everyone is on board with this plan, specifically, E&Y, “…it recruits from four-year universities where students get credits toward the CPA exam. That’s something “a two-year program doesn’t offer,” says Ken Bouyer, Americas Director of Inclusiveness Recruiting for Ernst & Young.”
Plus, since accounting firms like to pitch their professionals’ merits when courting new clients, there is a worry that community college grads are jumping up and down to brag about their less-prestigious education regardless of the accomplishments they’ve made professionally.
So accounting firms and the accounting industry appear to have an old white boy’s club problem. Is Deloitte taking the right approach? Is E&Y’s attitude short-sighted? Discuss your thoughts in the comments.
Deloitte’s Diversity Push [BW]

Something for the Office Gift Exchange This Holiday Season

gem_worthless.jpgWe don’t know a damn thing about gemstones but we’ll go out on a limb to say that 10,700 carats is a lot. That’s the size of a “ruby” that E&Y has the esteemed pleasure of trying to sell, as the administrators of now bankrupt Wrekin Construction in the UK.
The stone was once valued around £11 million but turns out its worth closer to £100.
E&Y is now resorting to hocking this overpriced paperweight, that will certainly be re-gifted many times over, in Rock ‘n’ Gem Magazine in the UK and Colored Stone Magazine here in the Land of the Free.
Rare £11m gem becomes £100 rock [BBC]
Failed group’s £11m ruby ‘near worthless’ [The Daily Telegraph]

Raid at E&Y Hong Kong Was Probably Really Boring

We don’t know what to make of the raid at the E&Y offices in Hong Kong that occurred yesterday. We’d like to think that it was something out of 24 where Jack Bauer was “forced” into an impossible situation where he had to shoot a sheisty auditor in the leg to find out where the “certain documents” were.

Alas, it sounds as though it was considerably less dramatic, falling way short of anything worthy of the Absurd-o-meter.


The HK Fuzz probably even talked it over before going to the E&Y digs and said, “We’re going where? Accountants? We don’t even need our guns for this one. Let’s just take coffee and bagels and they’ll probably do whatever we ask.”

We’re probably not far off as E&Y was sure to reiterate their intent to ‘engage with and further investigations into the Akai matter’. Bor-ing.

Not that we were expecting much but it would have been nice that if just once we’d hear about accountants stonewalling some authority figures. Instead, the Head of E&Y China is stepping down, which is hardly the same as a vast conspiracy that may or may not involve the President of the United States. Sigh. There’ll be a next time soon enough.

Hong Kong Police Raid Ernst & Young [WSJ]
HK police raid E&Y offices over documents [FT]
Earlier: EY Doesn’t Want to Be Outdone By Anyone So They Went to Hong Kong for a Scandal

E&Y Revenue Results: ‘Flat revenues certainly don’t tell the whole story’

Thumbnail image for ey8ball.jpgHyperbole Earnings season begins, Big 4 style, as E&Y has reported its global revenues of $21.4 billion for its 2009 fiscal year.
The Americas saw a drop in revenue of 5.5% to $8.6 billion and all other areas saw drops as well except for in Japan where E&Y made everything up with a 20% increase. In USD, this was a 6.8% drop in revenues from the prior year with revenue of $23 bil.
More, after the jump


Transaction Advisory Services saw the biggest drop in revenues (14.8%), followed by Assurance (6.3%).
The Americas region also saw the largest drop in people, approximately 3,000 less than fiscal year 2008, a drop of 4.5%. Globally, the firm’s headcount was essentially flat with Japan, again, showing the largest increase of 12.1%.
Ernstiverse Global CEO and Chairman (not to mention Head Global Accounting Standards Cheerleader), Jim Turley:

“I’m extremely proud of how our people adapted to this challenging year, and how they’ve worked so well with our clients to help them through these difficult times,” said James S. Turley, Global Chairman and CEO of Ernst & Young. “Flat revenues certainly don’t tell the whole story of this year, as we continued our investments in people and in building our markets, while helping our clients with the unusual and difficult issues they faced. FY09 will be remembered more for these activities than for top-line results.”

So we’re curious, Ernsters. How will you remember FY09? Will you remember ‘investments in people and building the markets’ rather than the ‘top-line results’? Discuss in the comments.
Ernst & Young reports fiscal year 2009 global revenues of US$21.4 billion [E&Y Press Release]