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February 2, 2023

Waste, Inefficiency, and Egregious Spending Abound at the PCAOB, Says Employee

pile of money on yellow background

Ed. note: We received the below letter from an anonymous PCAOB employee who is trying to blow the whistle on what they perceive to be excessive waste and inefficiency at the audit regulator, the gory details of which are described thoroughly in the letter. It has not been edited and is published here on the heels of the PCAOB’s recent approval of a 12.6% budget increase. Feel free to discuss in the comments.~AG

A variation of this letter, with now outdated information, was sent to members of the Subcommittee on Oversight and Investigations, the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, and to the Ranking Member on September 12, 2022, with no response. These members were chosen due to the fact they previously sent letters to the PCAOB and introduced legislation regarding its oversight.

I write as a whistleblower employee of the Public Company Accounting Oversight Board (PCAOB) to share my concerns about what I perceive are operating inefficiencies as it relates to excessive and wasteful spending. While most of what I am sharing here is not illegal or nefarious, I believe it reflects a mindset that willfully disregards the expectation that the PCAOB be responsible stewards of the funds collected from our issuers. The specific issues I wish to raise include observed operational and budget inefficiencies; spending for empty and under-utilized offices; spending for duplicative staffing; and data security.

I have raised these concerns with our internal ethics reporting line on multiple occasions. The responses I have received state the actions I have reported, which I outline here, are permissible under PCAOB business practices. While an expense or operational concern may be approved or follow accepted business practices, it does not mean that an expense should be undertaken. Adding to this approach is an attitude of, “it’s not our money;” a phrase I have heard stated from senior leaders in meetings I have attended.

The PCAOB’s Return to Office Plan

Like many organizations across the globe in response to the COVID-19 pandemic, the PCAOB adopted a 100 percent remote work policy in March 2020. Despite advances in vaccines, relaxed state, and federal guidance, and inconsistent with the actions taken by many of the PCAOB’s issuers, the PCAOB is largely operating in a remote capacity, with no requirement for staff to return to the office. In an organization of over 800 employees, the organization has seen only a fraction of staff to actively come to the office with any regularity based on documents I have seen. This model disregards our fixed office leases in ten offices across the country, including Washington. It seems that, now that the height of the pandemic has passed, this is not an efficient use of our space and the money paid to satisfy these leases.

On November 1, 2022 the PCAOB released the “Workplace 2.0” operating model. Highlights from the newly released guidance include the following.

  • Staff are allowed to live anywhere in the United States and are not required to come to the office with any regularity. Further, guidance provided to us indicate that salaries will not be adjusted for employees who move away from their assigned office. This is particularly problematic for staff who relocate from a city where salaries are higher due to a higher cost of living, to a city with lower salaries and lower costs of living. For example, if a staff member relocates from New York, NY where they are earning $100,000 to Tampa, FL where we have staff earning $80,000, an adjustment is not being made for the New York employee; therefore the New York employee, doing the same job, is earning more than the Tampa employee.
  • The only time(s) staff will be required to be in the office are for “intentional gatherings”, which does not include staff meetings, one-on-ones, project meetings, etc. Intentional gatherings must meet certain criteria before they are allowed to be scheduled.
  • Inspection staff members are not required to travel for inspections. In the Workplace 2.0 guidance, staff are allowed to opt out of traveling to an inspection, one of the most significant roles of the PCAOB.
  • The PCAOB is paying to ship office supplies to the homes of employees, regardless of where they live – even though offices are open.
  • The PCAOB is paying to ship mail and packages to the homes of employees, regardless of where they live – even though offices are open.
  • The PCAOB continues to subsidize commuting expenses (up to $120 per month) for all staff, regardless of their intent to come into the office. While the organization says the subsidy is for commuting to/from work, there are no controls in place to prevent staff from using it for personal benefit.
  • The PCAOB is paying for parking for senior staff, board staff, and board members, regardless of their intent to come into the office.
  • IT procured new equipment (monitors, keyboards, docking stations, mice, etc.) to backfill all the equipment taken from an employees office, at the onset of the pandemic, regardless of an intent to come into the office.

The indecision from top leaders in formulating a return to office plan was slowed by their personal opinions. Senior leaders vocalized in meetings and other gatherings they, “have no desire” to return to the office. This is an inefficient use of the PCAOB’s leased office space and issuer dollars as the PCAOB’s plan is not being driven by guidance from subject matter experts, and disregards doing what is in the best interest of the investors we serve.

Spending for Empty and Underutilized Offices, Office Supply Shipping

In March 2020 when the PCAOB transitioned from in person operations to fully remote operations, the organization began providing staff with office supplies. The supplies included items such as pens and highlighters to other items such as reams of printer paper and printer toner and ink. While this may have been reasonable decision to make when the pandemic was in its infancy, and much was still unknown, corporate life has adjusted and returned to a new cadence. Despite this, the PCAOB is still shipping office supplies to staff, and will continue to do so in Workplace 2.0, even though offices are open. A few examples include the following:

  • Purchase and shipment of office supplies to Board Members. This seems like an unreasonable expense of the funds received from our issuers.
  • Purchase and shipment of office supplies (i.e. paper, paper clips, pens, notepads, batteries, etc.) on demand, to staff.
  • Overnight shipping of binders and other printed materials to Board Members and their staff, who can otherwise come to the office. Further, the PCAOB Board members and their staff are eligible for parking paid for by the PCAOB; a matter I also will address in more detail within this letter. If Board members and staff are enrolled in parking, the PCAOB is not only paying for their parking, but also paying for the cost of shipping these materials. Further, four Board members live in the Washington, D.C./Maryland/Virginia area where the office at 17th and K can be easily accessed.

In addition to sending office supplies, the PCAOB’s Office of Data Security and Technology (ODST) purchased two Microsoft Surface Hubs at a cost of more than $35,000, for a conference room that is, given the PCAOB’s “Workplace 2.0” regularly unused in our Ashburn, VA office.

Further, the job search site “The Ladders” lists that that the average PCAOB salary is $129,195.[1] While I know that one average does not account for all salaries and the struggles some people may have in budgeting in this inflated economy, it seems unreasonable and irresponsible to send office supplies to employees who make well into the six-figures, especially as our office and those of our issuers have resumed pre-pandemic activities.

The PCAOB’s questionable spending extends beyond office supplies to fringe benefits for senior level employees, namely in parking, as I mentioned previously.

With the announcement of the voluntary return to office, employees eligible for paid parking – including Board members, their staff, division, and office directors – were allowed to re-enroll in organization paid parking without any requirement of regularly returning to the office. If all eligible staff are enrolled in PCAOB paid parking, the PCAOB pays more than $6500 per month or more than $83,000 per year, for spaces that are going unused [2]. This, again, is in addition to sending office supplies and other items to Board Members and their staff.

Beyond fringe benefits for senior level employees, division leaders have also spent funds for what appear to be excessive staff gifts. In 2021 the Division of Registration and Inspections (DRI) purchased a High Sierra Outdoor Speaker and Wireless PowerBank for all their staff members. At the lowest price point, they retail for $67.98 [3] per unit, with more than 350 staff members in DRI, the organization spent more than $23,000 in issuer funds for these items. This total does not account for shipping to each employee.

In addition, in 2021, DRI staff received wireless earbuds, a trunk/car organizer, and an insulated mug. In a professional setting, it would be anticipated that some gifts to staff may be expected for team cohesion or morale building, provided their cost and shipping is reasonable. Based on current economic conditions and the fact that the PCAOB’s funds are collected from issuers for which we are responsible to inspect, these gifts to staff seem excessive.

Spending on Duplicative Staffing

At the onset of the pandemic when most employees transitioned to remote work, several contractors were hired in the Office of Data Security and Technology (ODST), the Office of Administration (OA), and the PCAOB’s nine regional offices to augment work typically performed by permanent PCAOB employees. These tasks include duties such as shipping office supplies (mentioned previously), and work papers and other associated inspection materials received from issuers. Other tasks include responding to tickets submitted to our help desk and escorting vendors. Despite many of the PCAOB’s issuers having adopted a new cadence to working in the office or in a hybrid mode, both the retained contractors and permanent fulltime employees remain employed by the PCAOB. Further, the optics of this duplicative staffing is that PCAOB leadership has adopted a mindset that it is okay to expose contractors to potentially contracting COVID but not our own staff. As a result, the organization has been and still is – literally – paying multiple people to do the same job. This will not change with the announcement of Workplace 2.0. The PCAOB will continue to pay contractors to perform tasks that, prior to the pandemic, were the responsibility of permanent employees – who are still employed by the PCAOB. It seems irresponsible to pay for duplicative staffing given that many of our issuers have returned to the office, or in some cases, are reducing staffing and salaries while continuing to pay PCAOB fees.

Security of Issuer Data

In response to the COVID-19 pandemic, the PCAOB began shipping work papers and firm-provided laptops to the homes of PCAOB employees to conduct inspections and enforcement activities. While a limited number of inspections were completed remotely before the pandemic, inspections have continued to be conducted remotely.

While this decision may have been a reasonable response at the outset of the pandemic, after nearly two and a half years those practices remain in place. Given the PCAOB’s history[4] with sharing of confidential information and the current state of business following the height of the pandemic, it seems like a risk that is no longer justified to send these items to the homes of employees when it is now possible for staff to visit an office to pick up or return confidential and sensitive instruments.

Closing

In summary, the PCAOB states in its posted Strategic Plan that its values, among others, are integrity, effectiveness, and accountability. Within those values, the PCAOB states it will adhere to the highest standards of professional conduct; manage our resources effectively and efficiently and expect to be held accountable. Absolutely none of what I have disclosed demonstrates any of the PCAOB’s values or its ability to effectively manage resources.

On November 18, 2022 in an open board meeting, board members approved a more than 349 million dollar budget for 2023 – which now goes to the SEC for final approval. This budget is an increase of more than 39 million dollars over 2022.

I write this letter as an anonymous whistleblower as I know the PCAOB will spend more time and resources identifying the sources of this letter, rather than correcting any of the identified issues. As another whistleblower described in a 2019 letter, “…a sense of fear” within the organization [Ed. note: WSJ article about that letter]; and that fear remains today. Staff are unable to express any disagreement in professional opinions with the Chair or her staff, without fear of retribution. The culture at the PCAOB remains stagnant. Without competent and stable leadership, who are open to differing opinions and professional advice, the culture at PCAOB will remain hostile and unchanged, rendering it ineffective.

_____________________________________
[1] https://www.theladders.com/company/publiccompanyaccountingoversightboard-jobs
[2] According to information available on our intranet.
[3] https://high-sierra.brandeditems.com/product/high-sierra-outdoor-speaker-wireless-powerbank/
[4] https://www.justice.gov/usao-sdny/pr/former-kpmg-executive-and-former-pcaob-employee-convicted-wire-fraud-scheme-steal-and

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5 Comments

  1. A lot of the comments within the letter to me are a sign of an organization operating in a post-COVID (though it’s still here) low worker supply environment. Accounting firms are talent strapped and I wouldn’t be surprised if the PCAOB finds themselves in a similar position. A lot of businesses operating in a hybrid work environment likely haven’t adjusted their office real estate yet and might still be providing remote benefits while also allowing staff to come in as they did pre-pandemic.

    Duplication of work seems wasteful and likely should be addressed but honestly a lot of this letter reads like a disgruntled employee who is mad that people can still work from home, or something. I get it’s government so spending is more scrutinized but the complaint isn’t anywhere close to a smoking gun IMO. It’s not like they’re expensing champagne and caviar (…they aren’t right?).

  2. Big deal. How many million dollars in total is the whistleblower talking about?
    Is even 1% of the PCAOB’s budget here?
    The whistleblower should ask things like you find in POGO’s articles about the PCAOB.
    You recently posted a statement by Erika Williams of the PCAOB about CPA firms’ quality control. So? I ask: why hasn’t 20 years of PCAOB effort eliminated this supposed problem? Who cares about “quality control” anyway? This seems to be a diversion so as not to look at underlying audit issues.

  3. I’d like to respond to a few of OP’s main points:

    1. The PCAOB probably office leases signed these pre-pandemic. OP is suggesting they force employees to come into the office for no valid business reason other than to get their money’s worth? Ok, Boomer.

    2. OP complains that employees who move to lower cost cities aren’t getting automatic pay decreases, but why should your physical location impact compensation? Does an employee automatically become 20% less productive when they move from NYC to Tampa? There is a valid point here I suppose about new hires in Tampa being underpaid, but that’s not indicative of waste.

    3. The PCAOB is paying to ship office supplies to the homes of employees. I guess that’s wasteful, but how much can the shipment of office supplies really cost? Maybe $5,000 in waste a year?

    4.The PCAOB is paying to ship mail and packages to the homes of employees. Is it somehow cheaper to ship an item to the PCAOB versus a private home address? I can’t imagine there’s any difference at all

    5. The PCAOB continues to subsidize commuting expenses (up to $120 per month) for all staff. I can guarantee that auditing commuting expenses of $120/month is going to cost the PCAOB more money than it will save. And in any case, the commuting subsidy makes up for the fact that government salaries are not really competitive with the private sector.

    6. The PCAOB is paying for parking for senior staff, board staff, and board members, regardless of their intent to come into the office. Yes- here is some actual waste!! But instead of paying for parking, the PCAOB should just pay this in additional salary rather than subsidizing Baby Boomers driving in from their McMansions in suburban Virginia, and let individuals decide if they prefer driving a car or cash compensation. I will note this sort of waste is widespread in Corporate America and not something unique to the PCAOB.

    Overall, I’ve seen the CPA firms I’ve worked for waste money on way dumber things than this, and nothing here is indicative of a larger problem at the PCAOB. They really should stop paying for car storage though, especially since the PCAOB office sits directly on top of a DC Metro stop.

  4. I commend this person for raising an issue they consider inappropriate, particularly in light of the culture at this organization. That said, given the size of the PCAOB, the points raised are akin to a dad complaining that the kids don’t turn the lights off when they leave the room. If they are really looking to “blow the whistle”, the issues highlighted in the last paragraph of the letter are what should be emphasized.

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