July 17, 2018

Foreign Affiliates of Big Audit Firms Screwed Up Some Stuff

bdo kpmg deloitte zimbabwe

The Securities and Exchange Commission fined foreign affiliates of BDO, Deloitte, and KPMG for skirting oversight of the PCAOB. Here’s the skinny:

According to the SEC’s orders, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company without registering with the PCAOB. The two principal auditors – KPMG’s affiliate in South Africa and BDO’s Canadian affiliate – were registered with the PCAOB but improperly relied upon the work of the two unregistered foreign component auditors to complete their audits of the company. This violated PCAOB standards requiring sufficient analysis and inquiry when using the work of another auditor.

You follow? KPMG South Africa relied on the work of KPMG Zimbabwe (an unregistered firm) and BDO Canada relied on the work of Deloitte Zimbabwe (an unregistered firm). They should not have done that. In each case, the work of the Zimbabwe firm constituted more than 20 percent of the assets or revenues. In fact, the orders give examples of years audited where the work of the Zimbabwe firms accounted for 100 percent of the issuer’s revenues. That’s significant!

I confess that I am ignorant of how big audit firms keep all these international audit relationships above board, but couldn’t the KPMG South Africa guy just call the KPMG Zimbabwe guy and say, “Hey, are you registered with the PCAOB?” And if the response turns out to be, “Nope, sorry, I don’t even know what you’re talking about,” the KPMG South Africa guy knows that he has to go back to the drawing board. Nothing even remotely close to this appears to have happened in either case. Great job, everyone.

Is the fact that this didn’t happen a result of poor communication? Laziness? Corruption? All three? None of the firms admitted or denied the findings, so we’re left to our imaginations. See you for the next one.

[SEC, BDO Canada, Deloitte Zimbabwe, KPMG Zimbabwe, KPMG South Africa]

Related articles

SHOCKER: Doesn’t Appear that Stanford Auditors were Doing Any Auditing

allen-stanford_1018295c.jpgLast week’s indictment of Allen Stanford has brought up the always popular question when fraud, occurs: “Who are the auditors that were asleep at the wheel of this disaster?”
Well, in this case, the auditors were a local UK two-person shop, CAS Hewlett, which must be Queen’s English for Friehling & Horowitz.
It doesn’t appear that CAS Hewlett has a website, but they’ve been doing the Stanford “audits” for at least 10 years, so obv they’re legit. PwC and KPMG both have offices on Antigua but Stanford preferred to stay with its “trusted firm”. Totally understandable.
And the best part? The founder of the firm, Charlesworth “Shelly” Hewlett died in January, approximately a month before the story broke on the Ponz de Stanford.
This all adds up to who-the-fuck-knows if audits were even occurring and for us to speculate if Shelly needed to get got because Stan knew that the poo and fan were coming together. Just sayin’.

Madoff Feeders Getting Some Unwanted Attention

The SEC, feeling confident these days, has filed a complaint against Cohmad Securities Corporation and its Chairman, Chief Operating Officer, and one of the brokers, saying they “actively marketed Madoff investments while ‘knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud.'”
Call us Captain Obv but that sounds like they were either dumb or in on the scam. Either way, they can’t be too psyched about it.
An additional complaint has been filed by the SEC against Stanley Chais, an investment adviser who put all of the assets he oversaw into casa de Madoff.
Irving Picard, who might have the most thankless job in America, also sued both Cohmad and Chais, because, you know, a few people want their money back. The trustee’s complaint against Cohmad spells it out:

The trustee’s lawsuit asserted that fees paid to Cohmad by Mr. Madoff were based on records showing the actual cash status of customer accounts — the amounts invested and withdrawn — without including the fictional profits shown in the statements provided to customers. When a customer’s withdrawals exceeded the cash invested, Cohmad’s employees no longer earned fees from that account — even though the customer’s statements still showed a substantial balance, according to the lawsuit.

This arrangement indicated that Cohmad and its representatives knew about the Ponzi scheme and knew that the profits investors were allegedly earning were bogus, according to the trustee’s complaint.

Good luck explaining that.

Brokerage Firm and 4 Others Sued in Madoff Case
[New York Times]