$50 million here, $125 million there...
After a while it adds up to big money.
The Big 4 CPA firms seem to be engaged in a race to see who can pay the most in settlements in connection with class-action litigation or regulatory complaints. Not sure I would want to win this contest.
It was reported on Dec. 25, 2004, that Ernst & Young paid $125 million to the Federal Deposit Insurance Corporation in connection with the collapse of Superior Bank, a suburban Chicago bank, three years ago. The FDIC accused E&Y of auditing negligence in concealing the bank’s true financial condition.
Further, according to an article in the April 26, 2005, Wall Street Journal, more than $186 million has been paid out in the past few months by PricewaterhouseCoopers and the other mega firms.
Deloitte & Touche LLP was expected to pay a $50 million fine to settle SEC civil charges that it failed to prevent massive fraud at Adelphia Communications Corp. Arthur Andersen, a former national firm, agreed to pay $65 million in class-action suit litigation by investors in WorldCom. KPMG paid a $22.4 million settlement with the SEC related to its audits of Xerox Corp.
PricewaterhouseCoopers paid $48 million to end class-action litigation over its audit of Safety-Kleen Corp. This settlement was on top of payments in the past two years of $50 million to settle a class-action law suit involving its audit of Raytheon; $50 million in a lawsuit filed by Amerco, Inc., parent of U-Haul International; and $54.5 million for alleged travel overbilling in Arkansas.
Where are these firms getting the money to pay such large settlements? Surely they can’t find insurance to cover and pay so many large claims.
If it is coming out of partners’ pockets, I hope they are making big money and saving lots of cash for more rainy days – or they have good bankruptcy attorneys.
Accounting malpractice costs jump
According to the August 2004 “Inside Public Accounting” report, malpractice costs jumped, on the average, by 20.5 percent in 2004 for the nation’s top 100 firms. Malpractice costs increased from 0.78 percent of gross fees in 2003 to 0.94 percent in 2004.
Net revenue per partner increased from $1,156,194 to $1,209,902. This compares to increases in net fees by an average of 7.8 percent and a net income average increase of 11.5 percent.
Retirement plan audits under microscope
The Department of Labor is cracking down on CPAs who make mistakes during audits of retirement plans. Approving inflated asset values and missing 401(k) deposits are examples of audit targets.
Apparently, the large accounting firms will be first on the targeted list. While the Labor Department lacks authority to punish CPAs, it does have authority to levy high fines on plan sponsor employers for faulty audits.
Be careful what you e-mail
The March termination of Harry Stonecipher, Boeing’s president and CEO, for having an extramarital affair with an employee wasn’t so much because he had the affair, but because he got caught. While some may, perhaps, admire a 67-year-old who has the spunk to have an affair, one must question his judgment in documenting sensitive details of this affair on his company’s e-mail.
As observed by Alan Murray, in a March 9, 2005, article in the Wall Street Journal quoting one of his favorite country-music songs: “We know what you were feeling, Harry. But what were you thinking?!”
Stonecipher got caught because he had correspondence with a 48-year-old female vice president in the company’s Washington, D.C., government relations office through a series of very explicit e-mails.
His experience is just another of many e-mails (some of which have caused the senders to go to jail as a result of their
e-mails being used against them in trials) confirming, “You had better not put anything in an e-mail that you don’t want the world to see.” And that means anything! Hot e-mail to a lover. Sensitive e-mail to a colleague regarding a law suit, an investigation, an audit or tax matter … anything.
E-mail, unlike a passionate night out, isn’t over the next morning. It lasts forever. In a perfect world, the opposite would be true. A love affair would last forever, and an e-mail would disappear the next morning. But, we don’t live in a perfect world.
Think before you push the “send” button.
Deloitte & Touche: Firm or network?
That could be a million (sorry, billion!) dollar question. Which is why it appears that at least one Big 4 firm is now moving away from marketing itself as “an integrated firm worldwide.”
From an April 28, 2005, article in the Wall Street Journal, we learn Deloitte & Touche, facing an $18 billion (yes, billion!) lawsuit in connection with Parmalat SpA, one of Italy’s largest companies, is now stating its Italian arm, Deloitte & Touche SpA, bears sole responsibility for the failed audit.
According to the article, an attorney for Deloitte & Touche LLP in the United States said during a recent court appearance, “Each member is a separate, independent organization responsible for its own actions.”
The article further states that “The Big 4 accounting firms, Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young, have long claimed in court cases that their units are independent and can’t be liable for each other’s sins.”
Parmalat’s audit relied on work from Deloitte units in at least 30 countries including Italy, the U.S., Canada, plus others.
Deloitte’s promotional materials allegedly presented the firm as an integrated international firm able to tackle the finances of complex multinational organizations.
Interesting. I guess if you are a Big 4 firm, even though you “look like a duck, walk like a duck and talk like a duck,” you’re not a duck.
Until next time, everybody keep thinking! I would enjoy hearing from you and sharing your ideas on how your CPA Mutual team members can improve our service to you.
E-mail me at dthompson@cpamutual.com.
Douglas H. Thompson, Jr., CPA
President, CPA Mutual
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