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Whistleblower Confirms BP Gripes of McGladrey’s ‘Astronomical’ Fee for Audit of Deepwater Payments

Back in October, we learned that BP was upset with McGladrey over the firm's audit of BP's 2010 Deepwater Horizon spill victim compensation program. The problem? Money, of course:

With audit costs allegedly running nearly tenfold over budget and no audit in sight, BP last week asked a federal court to force the claims administrator to turn over McGladrey's work. McGladrey was hired after BP complained of mismanagement in the program.

BP says the audit tab is an “astronomical” $14 million-plus so far, compared with a maximum estimate of $1.6 million.

At the time BP began to question McGladrey fees, program funds were projected to pay out $9.2 billion to victims.

"Absent appropriate management, an auditor has carte blanche to bill for audit services without any risk of recourse. . . .We simply cannot understand how a nationally recognized auditing firm like McGladrey that has committed scores of auditors to this project cannot complete this single-entity audit within a year,” BP said in a letter earlier this month to Patrick Juneau, the court-appointed claims administrator.

Too easy, we're not even going to go there with that one.

Today, we learned an auditor who claims to have worked on the project filed an anonymous ethics complaint basically confirming BP's gripe about McGladrey running up the tab. The Louisiana Record has the exclusive:

The whistleblower said Mark McNamee, a McGladrey partner in charge of the Deepwater audit, was responsible for running up the expense tab and encouraging team members to do the same. According to the whistleblower, McNamee also allegedly encouraged staff to overbill hours worked.

“While on the Deepwater Horizon Engagement, Mark [McNamee] encouraged everyone to stay in the city of New Orleans on the weekends to ‘sightsee’ and charge the time and expenses during those weekends to ’working’ hours while in our hotel rooms,” the whistleblower said in a narrative provided to the Louisiana Record. “[McNamee] also said: “The client is willing to pay whatever costs that we incur during this engagement as long as we can get the job done.’”

If you compare this to what the audit actually found, it appears as though McGladrey did identify problems with the claims program, namely a lack of professional skepticism when it comes to cutting checks:

The 90-page McGladrey audit, released shortly before Thanksgiving, was broadly critical of the Deepwater Horizon claims center and Claims Administrator Patrick Juneau. The audit said that Juneau’s operation lacked basic internal financial controls and did not do enough to determine if the claims it paid out were fraudulent. In certain categories, McGladrey auditors said over 20 percent of paid claims lacked proper documentation. Although the audit did not say that the lack of documentation led directly to fraud, it did point out that Juneau’s employees failed to exercise “appropriate professional skepticism’’ when cutting settlement checks.

BP takes issue both with McGladrey's fees and their findings. And, while we're at it, math checking. This is from a BP appeal earlier this month to add McGladrey's work and findings to the public record:

“No audit by McGladrey was necessary to check the math,” BP said in its appeal. “Math checking was not the main purpose of the exercise.”

Back to our whistleblower, who says he knew the proverbial shit was going to hit the fan at any moment:

“There was a real feeling in the air that the entire team felt as if the audit was definitely a disaster waiting to happen,” the whistleblower said in the narrative. “When the story came out about BP Oil demanding the release of the audit report – no one that was a part of the audit was surprised; in fact we all wondered how [McNamee] was going to produce what he simply does / did not have: a justifiable audit report.”

You can take a look at McGladrey's findings here if you'd like to see on whose side you land; BP or the Deepwater Horizon Economic Claims Center.


Mcgladrey Audit by LARecord