Ed. note: an earlier version of this article contained the name of a review course the poster claimed to have used. As this information has not been verified and is not relevant to the issue at hand, it has been removed. Spotted this on Reddit this morning, and like /r/accounting I’m wondering how this is […]
Auditors — especially seasoned IT auditors — are familiar with the scene of sitting with a nervous backup and recovery analyst once a year for a walkthrough. If you haven’t had the pleasure of experiencing it, here’s the drill: It begins with rapport-building (read: uncomfortable) small talk mixed with a few questions about the overview […]
Nor does it seem real which either means: 1) It's totally real and if so, let's pray for this person; 2) It's totally not real. But hey, someone shared it with us on Twitter, so okay! Worst #CPAexam score ever? What do you think happened here @going_concern #yikes pic.twitter.com/c2oSSzfhIc — benson (@benson304) June 21, 2016 […]
Now that scores are out, this may be relevant to your interests.
Up until this point, Ernst & Young has seemed perfectly content to see how this Sino-Forest situation (some have called it a "Ponzi scheme") would play out, standing quietly by their audit opinions without so much as a peep*. Canadian regulators, possibly impatient with the radio silence, have decided that they'll open things up, as the Ontario Securities […]
When I finally got around to writing about the HP/Autonomy finger pointing party yesterday, the topic of fraud detection by auditors came up as it often does in these scenarios. More specifically, the statement that "audits are NOT designed to detect fraud." A friend of Going Concern emailed me later in the day with […]
Late yesterday the PCAOB released the first Big 4 firm inspection report with none other than KPMG (in full on page 2). Compliance Week reported that the House of Klynveld more or less stayed consistent with last year's findings, which basically amounts to everyone shrugging with indifference: In its first published report from the 2011 […]
PCAOB Auditor Wrecking Ball Tour 2012 rolls on with the an interim report on the auditors of broker-dealers. And this time there's 100% deficiency! From the Executive Summary of the Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers: This report presents observations from inspections of portions of […]
The farewell email is one of few art forms in the corporate world. There are good ones. There are bad ones. There are the ones that when you read them, you recognize its genius instantly. They are similar to street art in the sense that they have very short shelf lives; you will probably see […]
I mean, you know how it is, when you lose $192 million. It’s a tough thing to forget. The Journal reports that the Garden State has renewed its lawsuit against E&Y saying “Those review reports were false, as E&Y knew or should have known that Lehman’s quarterly financial statements were not prepared in accordance with [GAAP].” When reached for comment, E&Y spokesman Charlie Perkins’s voice was barely audible on a nearly worn out tape recording, “Lehman’s demise was caused by the global financial crisis that impacted the entire financial sector, not by accounting or financial reporting issues.” Wouldn’t it be nice if Chuck had Nick DeSanto sing the statement? With a rock accompaniment? At least it would liven up this story again. [WSJ]
As we mentioned briefly, Deloitte has been sued for $7.6 billion by the bankruptcy trustee of Taylor, Bean & Whitaker and Ocala Funding, LLC. If you’ve never heard of Taylor, Bean & Whitaker then check out Jr. Deputy Accountant who’s been all over it since the Feds starting kicking down the doors. Long story short – TBW was a giant fraud perpetrated by its management, Colonial Bank owned a lot of TBW’s mortgages, Colonial failed, Bank of America bought up a bunch of the mortgages, Fannie Mae says they’re owed money, CHRIST, it’s a mess.
“Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by documents in Deloitte’s possession,” one of the lawsuits says.
Of course Deloitte isn’t amused by this, as Deloitte spokesman Jonathan Gandal’s statement attests:
Gandal said the blame for the fraud and losses should rest squarely on Taylor Bean, Ocala Funding and Farkas. “The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” Gandal said on behalf of Deloitte.
If this statement strikes you as a little confusing, then you’re not alone. First off, when Mr. Gandal is referring to the “the law” he’s probably referring to this. In less legalese, basically what Deloitte is saying is that Lee Farkas and his merry band of crooks are the ones responsible for this shitshow not the Green Dot and therefore, this whole thing is ludicrous. I mean, come on guys, what could a firm that just reported nearly $29 billion in revenue could possibly have done differently? Crooks are just far too smart far auditors. Just ask one.
They were so unimpressed with it, in fact, that they are fining the firm $900,000 and partner David Shane $100,000 to settle up.
Mickey G’s issued an unqualified audit opinion for One World Capital Group’s 2006 financial statements and also stated that the company’s internal controls were just fine and dandy. Neither of these things turned out to be true. And when you read the CFTC’s press release, you really have to wonder if anyone was really auditing this company:
[T]he order finds that One World’s 2006 financial statements were materially misstated in various ways including: (1) the 2006 Statement of Financial Condition states that liabilities payable to all customers were over $6.9 million, when in fact information available in One World’s records showed that it may have owed at least $15 million just to forex customers alone, for whom One World served as the counterparty; and (2) the 2006 financial statements materially misstated the nature of One World’s business by failing to reflect that One World served as the counter party to its forex customers for over 90 percent of its business, according to the order.
In addition, McGladrey failed to report material inadequacies in One World’s accounting system and internal accounting controls, including the lack of a customer ledger, and an accounting system that did not properly identify the number of forex customers or the amount of customer liabilities, according to the order. These material inadequacies reasonably could, and did, lead to material misstatements in One World’s 2006 financial statements, the order finds.
As if the combination of March Madness and St. Patrick weren’t enough, this slide from yesterday’s Investor Advisory Group meeting should drive many to drink.
After yesterday’s findings on the usefulness (or lack thereof) of the auditor’s report, we bring you “The Watchdog that Didn’t Bark … Again.” It’s not as caught up on surveys and whatnot, as it is just pointing out some of the well, failures by auditors during the financial crisis.
The presentation was prepared by The Working Group on Lessons Learned from the Financial Crisis of the IAG and includes past comments from critics like Francine McKenna and Jonathan Weil on the expectations gap between auditors and basically everyone else. But don’t worry, it also presents the audit profession’s defense of itself including past statements from the Center for Audit Quality and PwC’s Richard Sexton the head of audit it the UK, who said this:
Now, one could come to the conclusion that Mr Sexton works for his clients first and not investors but you might not agree with that.
Now before all the Big 4 auditors get in a huff, the presentation has some criticisms of the PCAOB as well, specifically on the report the Board issued in September 2010:
If you can manage to stop drinking your breakfast for two, check out the full presentation below and discuss.
The Hill reports that the new bill has 52 co-sponsors which lead you to believe that this time, repeal will be a cinch:
Senators reintroduced bills that would eliminate the 1099 requirement for businesses to report annual purchases of at least $600 from each vendor. Most Democrats, including the Obama administration, support repealing the provision, but lawmakers have clashed over how to offset the $19 billion in lost revenue.
A bill introduced Tuesday by Sens. Mike Johanns (R-Neb.) and Joe Manchin (D-W. Va.) authorizes the Office of Management and Budget to identify unobligated federal funds to cover the cost of repeal.
“It’s a bad policy; it hurts businesses and it should be repealed, enough said,” Johanns said in a conference call with reporters.
The measure has 52 co-sponsors including 12 Democrats: Sens. Mark Begich (Alaska), Michael Bennet (Colo.), Maria Cantwell (Wash.), Kay Hagan (N.C.), Amy Klobuchar (Minn.), Manchin, Ben Nelson (Neb.), Mark Pryor (Ark.), Debbie Stabenow (Mich.), Jon Tester (Mont.), Mark Udall (Colo.), Mark Warner (Va.).
With such an overwhelming show of bipartisan support the only issue now is who will get the credit for saving small business as we know it?
Both parties have seized on the 1099 requirement to score political points. Republicans are posing repeal of 1099 as part of their promise to chip away at the reform law, while Democrats are touting it as a sign of their willingness to improve the current law.
Just for the sake of spiteful mischief, we’re hoping this goes nowhere (any and all theories on how they manage to do that are encouraged). Stay tuned!
Senators introduce bipartisan 1099 repeal bill [On the Money/The Hill]
This is the risk to providing excellent client service to anyone and everyone; you forget to keep any of that wisdom for yourself.
A support group says it has received a record number of calls from accountants in personal debt over the past few months.
The Chartered Accountants’ Benevolent Association (CABA) for UK chartered accountants says that it has seen a sharp rise in calls from accountants with debt problems over the past few months.
CABA said that it has received its highest ever number of calls from accountants asking for help in dealing with personal debt – and expects the problem to worsen over the next few months.
Kath Haines, chief executive of CABA, said: “The number of calls that we are receiving about debt is probably at a record high and we believe that this will grow quite substantially during early 2011.
Accountants racking up record level of personal debt [Accountancy Age]
If you’re a small city in California, you probably won’t be looking to Mayer Hoffman McCann to do your audits. If you’re already with them, it’s time to go auditor shopping.
Following the debacle that was Mayer Hoffman McCann’s completely blown city of Bell audits, the city of Riverside has joined the angry mob and will not be looking to renew with MHM any time soon. Riverside’s CFO Paul Sundeen said “given that the firm’s five year contract with the city is at its end and the controversy at the city of Bell, we will not include them [when seeking proposals for an auditor]”. Sorry, MHM, don’t wait by the mailbox for that invitation because you aren’t invited to the party.
Now that’s not nearly as harsh as getting fired by the client but sends a clear message to MHM (and any other questionably-equipped-to-do-their-job auditors out there) that ineptitude will not fly with the client. Unless, of course, there’s a conspiracy at work to defraud TPTB, in which case ineptitude is totally welcome if not encouraged.
Once again, it comes down to scope. No audit firm should be expected to look at every receipt and every statement but in the case of the Bell audit, auditors obviously missed some very large accounts either on purpose or because the firm sent a bunch of fresh-faced neophytes down there (this rarely happens) to actually perform the audit (Note to MHM: $8.89 million is significant unless you’re auditing the King of Saudi or the Federal Reserve). What happened to the accountability SOX promised us?
Said Riverside city controller Jason Al-Imam, “They want to do the right amount of work because they don’t want to lose their license, but they can’t audit everything. Sometimes something might go wrong and that just might be an area that they didn’t look at.”
Scraping by isn’t doing it anymore for the profession, so Riverside is more than welcome to go track down some new auditors but who wants to bet the kids doing their next audit will be just as fresh-faced and clueless as the last bunch MHM sent to fetch the client’s bank recs and invoices?
City of Riverside to drop Bell’s financial auditor [The Riverside Press-Enterprise]
Okay, those weren’t the EU financial services commissioner’s exact words but you get the sincere impression that he’s had it up to his silver coif with how things are going.
“The crisis highlighted failings in the audit sector,” Barnier said today. “These need to be explored and we need to see what improvements can be made. I believe it is important to approach this discussion in a frank and open manner. No subject should be taboo.”
Right! No subject is off limits. So what will be discussed? Well, for starters this Big 4 thing has to stop. The Telegraph reports, “If one of the Big Four – PricewaterHouseCoopers, KPMG, Deloitte and Ernst & Young – were to collapse the Paper suggests it could create systemic risk for the financial markets.”
Secondly, the notion of independence and “putting shareholders” first is a sham. ‘Berg reports:
Restrictions on auditor choice may reduce “distortion within the system” caused by auditing firms acting in the interests of their clients rather than shareholders when compiling reports on a companies’ financial health, the commission said in a report outlining possible measures.
The commission said it’s also considering rules that would force companies to change their auditing firms after a fixed period of time.
Forcing companies to rotate their auditors would “enhance the independence of auditors” and “operate as a catalyst to introduce more dynamism and capacity into the audit market,” the commission said.
Lastly, can a Frenchman get some choice up in this mofo?
The top four accounting firms have a market share of about 90 percent in the majority of EU member states, according to the commission’s report.
“The market appears to be too concentrated in certain segments and deny clients sufficient choice when deciding on their auditors,” the commission said.
Barnier isn’t asking for a full-blown cafeteria but for crissakes, the choices right now are chicken, chicken, and….chicken. Sure, they might have slightly different recipes (e.g. KPMG a little spicy/sweet, PwC is in a cream sauce) but it’s all chicken. And Barnier HATES chicken.
Gosh, team. It’s been over two years since Lehman bit the big one and now all that’s left is bits and pieces (Barclays, pink sheets, Dick Fuld’s stonewalling testimony) and charges from the SEC that could eventually see the light of day (unless the sun burns out first). Oh! And Ernst & Young. They’re in the mix too, although some people we talk to have their doubts about any repercussions.
Anyhoo, there was a big auction at Christie’s in London today directed by the newly-branded PwC. After everyone got done ribbing the P. Dubs partner in attendance about the Atari design, the bidding started. Here’s a little taste of what’s been sold so far, courtesy of the Times:
• Corporate Sign from Canary Wharf building – £42,050. Bidding started at £5,000
• Gary Hume’s Madonna – £120,000 (most expensive item so far)
• A collection of five maps from circa 1720 – £1,875
• An 1870 collection of the works of one Bill Shakespeare
• Two etchings by Lucian Freud
• Photographs by Sebastião Salgado
• A 43.5-inch painted pine model of a 62-gun ship
Overall, the auction has topped £600,000, according to Accountancy Age but is still rising. You can probably still get a bid in if you hurry.
And this has nothing to do with Lehman Brothers.
Attorneys from Houston’s Ahmad, Zavitsanos & Anaipakos are representing a group of investors in a lawsuit filed against hedge fund auditors Ernst & Young after the group lost more than $17 million following the collapse of a Plano, Texas-based hedge fund that promised low-risk investments.
The lawsuit focuses on two funds sold by Plano’s Parkcentral Global and was filed on behalf of Houston financial consultant Gus H. Comiskey and four Tucson, Ariz.-based entities, including the Thomas R. Brown Family Private Foundation. The now-defunct Parkcentral Global was operated by affiliates of billionaire and former presidential candidate H. Ross Perot before closing its doors after losing a total of more than $2.6 billion.
“Our clients were told that an investment in Parkcentral was designed to preserve capital. Instead, they lost every penny in record time. E&Y was supposed to be auditing Parkcentral, but the audited financial statements never once warned Parkcentral’s investors of their impending doom,” says attorney Demetrios Anaipakos, who will try the case with Amir H. Alavi.
Did you hear that E&Y? RECORD TIME! But why the Ross Perot mention, Ahmad, Zavitsanos & Anaipakos? Got something against eccentric Texas billionaires that like explaining complex things with charts? Sadly, the BPR does not elaborate.
The lawsuit includes claims that New York-based Ernst & Young falsely represented that the company fairly audited Parkcentral Global and the auditor failed in its “watchdog” [Ed. note: These quotation marks appear to be unnecessary. Also, the “watchdog” thing, sucks as metaphor.] role to warn relying investors of the risk of fraud and noncompliance by management. The suit accuses Ernst & Young of fraud, negligent misrepresentation, securities fraud and conspiracy.
This month, Brown Investment Management, L.P., one of the plaintiffs in this suit against Ernst & Young, won a Delaware Supreme Court ruling that requires Parkcentral Global to disclose its former investors. Those investors could be added to the new Houston lawsuit.
The investments of the Brown foundation, Brown Investment Management and the two other family-related ventures totaled $16 million and were lost within 90 days despite a “worst case loss” estimate of 5 percent. Mr. Comiskey, like his fellow investors, lost 100 percent of his investment when Parkcentral Global went under.
Mr. Anaipakos and Mr. Alavi have handled disputes against hedge funds and private equity firms for more than a decade. This lawsuit is separate from a class action filed in the U.S. District Court for the Northern District of Texas against Parkcentral Global.
Earlier in the summer, we told you about Marin County California, who was pretty displeased with Deloitte throwing a bunch of ‘neophytes’ at their ERP implementation project or in the County’s words ‘a trial-and-error training ground.’
As a result of Deloitte’s amateur hour, the SAP system – that Deloitte claims was just fine and dandy where they left it – is now being thrown to the scrap heap by the county because fixing it will cost more than replacing the whole system. And God knows Arnie won’t be helping them out with the bill, so they have to save on costs where they can.
The system is the subject of a lawsuit Marin County filed against system integrator Deloitte Consulting earlier this year. Deloitte used the project as “a trial-and-error training ground” for inexperienced employees, and the result was a “costly computer system far worse than the legacy systems it was intended to replace,” according to the county’s complaint.
Deloitte has filed motions against Marin County’s “completely unfounded allegations,” as well as a complaint seeking unpaid fees, a spokesman said via e-mail. The system “was working properly and could perform all the tasks consistently with the standards set forth in the written contract,” according to a Deloitte court filing.
Marin County tells a different story. The SAP implementation dates to 2006, but today only 50 percent of the functionality is in place and working properly, according to a county report.
The county hasn’t decided on who they’re going with for the new system but if you’ve got a one-person shop with no experience and present your RFP using overhead transparencies, you’ll still have an edge on Deloitte.
As we mentioned late yesterday, the PCAOB has been working hard these days. Late nights, weekends, ordering in and whathaveyou. Adrienne told you about the new eight auditing standards that you’re all expected to have memorized by Labor Day, and we wrapped up with Dan Goelzer snagging QOTD for the Board’s move towards open enforcement proceedings. This move will, presumably, be used in order to shame the pants off of those of you that dare to break the rules.
But the Board had one more thing to serve up yesterday and that was to put it out there that they don’t think too highly of the job auditors are doing supervising the worker bees:
“Through its inspections and investigations, the PCAOB has observed that supervision processes within firms are frequently not as robust as they should be, and that supervisory responsibilities are often not as clearly assigned as they should be,” said PCAOB Acting Chairman Daniel L. Goelzer. “Today’s Release seeks to highlight the Board’s views on the scope for using the authority provided in the Act to address those problems.”
For an industry that depends so heavily on a hierarchal structure, this does not bode well. There are several possible scenarios that led the PCAOB to jump in with their thoughts, including but not limited to:
1. Dozens of audit engagements of publicly traded companies have aloof partners that pop in once or twice a week, observe a handful of staff people feverishly ticking and tying, only to assume everything appears a-okay.
2. The PCAOB has incredible “luck” picking the biggest shitshow engagements.
3. The PCAOB is just blowing the shortage of experienced SAs out of the water.
4. Inspectors don’t buy the “we got this” story from the A1 and A2 running an accelerated filer engagement.
If you’re on one of these free-for-all audits, for crying out loud, get in touch. We want details.
The PCAOB has issued its annual report on Ernst & Young having given the firm the third degree at its national office and 30 of its 80 U.S. offices. It inspected 58 audits performed by the firm but exactly who is, of course, a big secret (unless you tell us).
There were five “Issuers” that were listed in the report and some form of the word “fail” was used 25 times (that includes the footnotes).
[Issuer A] The Firm failed to adequately test the issuer’s loan loss reserves related to certain loans held for investment. Specifically, the Firm failed to reconcile certain values used in the issuer’s models with industry data, failed to test the recovery rates used in the issuer failed to test the qualitative components of the reserves.
Damn those loan loss reserves!
[Issuer C] The Firm failed to perform sufficient procedures to test the issuer’s allowance for loan losses (“ALL”). The issuer determined the general portion of its ALL estimate, which represented a significant portion of the ALL, using certain factors such as loan grades. Data for this calculation were obtained from information technology systems that reside at a third-party service organization. The Firm relied on these systems, but it failed to test the information-technology general controls (“ITGCs”) over certain of these systems, and it failed to test certain of the application controls over these systems. Further, the Firm’s testing of the controls over the assignment and monitoring of loan grades was insufficient, as the Firm failed to assess the competence of the individuals performing the control on which it relied.
This loan thing appears to be a trend…
[Issuer D] The Firm failed to sufficiently test the costing of work-in-process and finished goods inventory. Specifically, the Firm’s tests of controls over the costing of such inventory were limited to verifying that management reviewed and approved the cost allocation factors, without evaluating the review process that provided the basis for management’s approval.
Hopefully that doesn’t blow back on an A1.
Anyway, you get the picture. The whole report is below for your reading pleasure. E&Y’s got its $0.02 in, however it was short and was mostly concerned about the firm’s right to keep its response to Part II (the non-public part)…non-public:
We are enclosing our response letter to the Public Company Accounting Oversight Board regarding Part I of the draft Report on 2009 Inspection of Ernst & Young LLP (the “Report”). We also are enclosing our initial response to Part II of the draft Report.
We note that Section 104(g)(2) of the Sarbanes-Oxley Act requires that “no portions of the inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection shall be made public if those criticisms or defects are addressed by the firm, to the satisfaction of the Board, not later than 12 months after the date of the inspection report.” Based on this statutory provision, we understand that our comments on Part ii will be kept non-public as long as Part ii of the Report itself is non-public.
In addition, we are requesting confidential treatment of this transmittal letter.
So this doesn’t mean much other than E&Y would prefer that no one know how it managed to tell the PCAOB to fuck right off as nicely as it could.
If you had the pleasure of being on one of these 58 engagements, we’d love to hear about your experience.
Jonathan Weil over at Bloomberg has a new column up today and he is less enthusiastic about the Supreme Court decision in FEF v. PCAOB than say, everyone else.
JW is mostly wondering why we should keep having an “independent” PCAOB inside the SEC since the board members will now be at the mercy of the towing the political line inside the Commission, “While the court
Nationally, only 43% of CPA exam candidates who sit for any exam part pass on their first try and that number shouldn’t be too surprising to anyone who has gone into an exam completely unprepared or totally intimidated. Failure may be inevitable but it doesn’t have to be the end, nor does it mean you should give up on trying to become a CPA.
So what do you do if you’ve failed?
There are two paths to take and your option from here depends a lot on how you did. Not all less-than-74s are created equal.
If you scored < 70: If you got anything less than a 70, give or take, you can put this exam off until later and move on to the next section if you are having difficulty grasping the information, especially if you scored in the bottom 60s or lower. UNLESS you are on a time crunch (like you have to get this one passed or you’ll lose credit on another section), blow this one off and move on to another. If you want to continue and try this one again you can but you should start from scratch, use your score report to gain insight into where you need more work, and review EVERYTHING as if you have not studied at all.
If you scored > 70: Pay your re-application fee and get a new NTS for this exam ASAP! A score above 70, while disappointing if less than 75, shows that you have an excellent command of the information and you’ll want to retake this one while the information is still fresh in your mind. DO NOT move on to another section. Use your score report to gain insight into your weaker areas but don’t obsess too much over what it tells you, keep in mind the report compares you to other candidates and you don’t care how other people did on the exam, you need to know where YOU need to do more work. DO NOT waste your time watching all of your CPA review lectures again, focus on doing MCQ/simulation practice questions and brush up on the areas you are weak in. Then, just before your exam, give everything a very quick overview one last time to make sure you have not forgotten the things you already know.
The point is that most CPA exam candidates experience failure at one point in the process, and some will experience failure repeatedly along the way. Be smart about your mistakes, learn from them and move on. You CAN pass, it’s just a matter of understanding how to overcome the many stumbling blocks you may encounter along the way.
What Happens When You Get a 74?
Now £15.7 billion may not seem like much to you if you are, say, Bill Gates or Ben Bernanke but for PwC UK, it may be the magic number that gets them into a whole steaming shitpile of trouble.
UK regulators allege that from 2002 – 2009, PwC client JP Morgan shuffled client money from its futures and options business into its own accounts, which is obviously illegal. Whether or not JP Morgan played with client money illegally is not the issue here, the issue is: will PwC be liable for signing off on JPM’s activities and failing to catch such significant shenanigans in a timely manner?
PwC did not simply audit the firm, they were hired to provide annual client reports that certified client money was safe in the event of a problem with the bank. Obviously that wasn’t the case.
The Financial Reporting Council and the Institute of Chartered Accountants of England are investigating the matter, and the Financial Services Authority has already fined P-dubs £33.3 million for co-mingling client money and bank money. That’s $48.8 million in Dirty Fed Notes if you are playing along at home.
Good luck with that, PwC. We genuinely mean that.
Inquiries mount after PwC ‘failed to notice’ mistakes [Times UK]
In anything is better than the shit BP has on its hands news, Reuters reports that creditors of PFF Bancorp Inc are requesting permission from a U.S. Bankruptcy Court in Delaware to snoop around “information in KPMG’s possession” to find out what the firm knew about PFF’s over-leveraged, under-capitalized, risk-loving ways.
The company’s committee of unsecured creditors wrote in their request that “Information in KPMG’s possession may support potential claims against third parties and against KPMG itself, if, for example, it becomes apparent that KPMG knew or should have known at an early date of any overly-aggressive or inadequately-controlled loan practices of the (company).”
So in other words, PFF would like to – pretty please – sue someone’s ass and they’d like to confirm whether or not KPMG will be a good candidate for said ass suing. So assuming the bankruptcy court gives them the thumbs-up, PFF will send in the hounds to find out what’s what. And they’ve covered themselves nicely by using the wonderfully subjective “knew or should have known” so KPMG’s only option will be to invoke the “we were duped” excuse, which isn’t such a flattering option.
KPMG didn’t respond to Reuters’ request for comment or our email but we’re guessing they’re less than enthused about sharing what is in their audit workpapers. Not necessarily because the documentation will have a smoking gun but more so because they might discover that the partner on the engagement has a bad habit of doodling and that’s just embarrassing.
Deloitte is being sued by Marin County in California, who is alleging fraud by misrepresenting its “skills and experience.” In other words, the County says that D used their ERP project as more or less a training ground for its newbie consultants. And no client likes it when you bring the blades of grass on site. They can’t even turn on their laptops without causing some sort of scene, amiright?
Channel Web has some of the particulars:
The County in April 2005 hired Deloitte to implement its SAP ERP system. However, the County alleged in the court document, “rather than providing the County with SAP and public sector exp d the County’s SAP project as a trial-and-error training ground to teach its consultants — many of them neophytes — about SAP for Public Sector software, all at the county’s expense.”
Plus! The County claims Deloitte promised their very best people. From the complaint: “Deloitte further represented that for the County’s SAP implementation, Deloitte had assembled a team of its ‘best resources’ who had ‘deep SAP and public sector knowledge.’ ”
A Big 4 firm promising their best and brightest on the job in an RFP? There’s a shocker. “Best” being relative, as we all know but Marin County (obviously not familiar with a Big 4 sales pitch) must have been expecting a team to fly in from hyperspace that could slap this thing in lickity.
Thankfully, Michael Krigsman explains over at ZDNet that this isn’t exactly rare:
1. The court filing describes sales practices that are common through the consulting and systems integration industry.
For example, the complaint alleges that Deloitte committed to “dedicate our best resources and bring tailored implementation strategies to meet [Marin’s] long-term needs.” Many IT customers complain their system integrators do not follow through on such commitments and use inexperienced labor in attempts to reduce their own costs and increase profits.
We’d be so bold to say that this true of many Big 4 engagements, whatever the service line. Newbies have to get their teeth cut somewhere – why not on a public service job where money obviously grows on trees?
Deloitte isn’t impressed with this gnat of a lawsuit, claiming that they did exactly what they were supposed to do (not to mention to put up with the amateurs at MC that have zilch ERP experience) and the system was working just fine when they left:
As stated previously, we fulfilled each and every one of our obligations under the contract, as evidenced three years ago when all of our work was approved by the County officials responsible for the project. To be clear, the SAP (NYSE:SAP) software was working properly when we completed our work in November 2007. Not only is the complaint without merit, but we are filing our own claim against the County for breach of agreement and unpaid invoices. Although we are confident that we will prevail in court, it remains our belief that this dispute can and should be resolved in a more logical fashion that benefits the County and its taxpayers.
So Deloitte gets a little huffy basically saying, “Suck it, Marin County. MBAs love Deloitte. OH, and btw, you owe us some money,” but ultimately wants to keep things civilized for the sake of the taxpayers. Let’s hope it stays childish just for the sake of entertainment purposes. Taxpayers in California are f—ed anyway.
California County Sues Deloitte For Fraud In SAP ERP Project [Channel Web]
Marin County sues Deloitte: Alleges fraud on SAP project [IT Project Failures/ZDNet]
After mixed reviews, it seems that no combination of nostalgic accounting fraud, raptors in Brooks Brothers and former President Charles Logan could save Enron the musical.
Enron on Broadway to Close Sunday, May 9TH, 2010 [Broadway’s Best Shows]
In part one of our discussion, we discussed audit firm failure and why the business model is not sustainable in the current form. We will now look at questions about what the aftermath of a Big 4 firm failure could look like and what some various paths could be:
Why isn’t a “Big 3” audit firm situation sustainable?