Again, an Auditing Firm Fails to Serve the Public Interest

Again, we’re confronted with a CPA firm that has harmed the auditing profession. 

This time, PricewaterhouseCoopers (PwC) was doing a consulting assignment for the Bank of Tokyo-Mitsubishi (BTMU). The New York State Department of Financial Services investigated the assignment and concluded, "PwC – under pressure from BTMU executives – improperly altered an historical transaction review" (HTR) report submitted to regulators on wire transfers that the Bank performed on behalf of sanctioned countries and entities."

The purpose of the engagement was to ensure that transactions with Iran and other countries under United States sanctions were properly handled:

“[PwC] conducted a Historical Transaction Review ("HTR" ) for BTMU. The HTR analyzed BTMU 's U.S. dollar clearing activity between April 1, 2006 and March 31, 2007. Its purpose was to: ( I) identify any U.S. dollar transactions that potentially should have been frozen, blocked or reported under applicable OFAC [Office of Foreign Asset Control] requirements; and (2) investigate the relevant transaction set for compliance with OFAC requirements.”

PwC claims it did this consulting assignment under Statement on Standards for Consulting Services No. 1 issued by the AICPA. Those standards say the consulting firm should:

“Serve the client interest by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity.”

In addition, Article III of the Code of Professional Conduct describes integrity as follows: 

"Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle." 

Unfortunately, PwC allowed the client bank to edit its report and as a result, significant changes occurred between the original draft and the final report.

Originally, the report said:

“While we agree in theory, had PwC know [sic] about these "[deleted Special]Written Operational Instructions" at the initial Phase of the HTR then we would have used a different approach for completing this project.”

The final report, after suggested edits from the bank, said:

                                 

“We have concluded that the written instructions would not have impacted the completeness of data available for the HTR and our methodology to process and search the HTR data was appropriate.”

In an initial draft of the report, PwC included paragraphs from a bank manual outlining “special instructions” employees should follow to ensure that transactions with countries under United States sanctions did not draw attention. PwC deleted those paragraphs in the version of the report sent to regulators, again based on suggested edits from the bank.

From at least 2002 to 2007, BTMU had unlawfully cleared through the Bank' s New York State licensed branch about 28,000 payments, valued at about $100 billion. These improper payments involved Iran, Sudan, Myanmar, and other entities under US sanctions

So as the United States fights terrorist states around the world, PwC does nothing to help our nation while it harms its reputation and the auditing profession.

I wonder what kind of action the accounting profession will take against the PwC employees who failed to follow the Consulting Standards and the Code of Professional Conduct? (See http://davehancox.blogspot.com/2014/08/illinois-takes-no-action-against.html- taking no action by our profession is all too common – even on big publicity events)

The New York State Department of Financial Services fined PwC $25 million and has suspended the firm for 24 months from accepting consulting engagements at financial institutions regulated by the Department of Financial Services.

Here is an example of the edits suggested by the bank - there were several iterations of these edits.

http://www.dfs.ny.gov/about/press2014/pr140818_PwC_Order.pdf

Illinois Takes No Action Against Auditors Found Culpable in Dixon, Illinois Fraud

Prior blogs on this topic:

http://davehancox.blogspot.com/2013/06/incredibly-auditors-miss-53-million.html

http://davehancox.blogspot.com/2013/06/auditors-miss-phony-invoices-would-you.html

http://davehancox.blogspot.com/2013/07/auditor-independence-and-competence-on.html

http://davehancox.blogspot.com/2013/08/send-these-auditors-back-to-school.html

http://davehancox.blogspot.com/2013/08/dixon-auditors-didnt-pay-attention-to.html

http://davehancox.blogspot.com/2013/09/auditors-settle-lawsuit-in-dixon.html

The city of Dixon, Illinois announced on September 25, 2013 it would receive a $40 million settlement from CliftonLarsonAllen, Fifth Third Bank, and Janis Card and Associates for the fraud Rita Crundwell committed and was not detected by the CPA firms or the bank.

I followed up with the Illinois Department of Financial and Professional Regulation to determine if the Department had considered investigating or had taken disciplinary action against the Certified Public Accountants involved in the audits of Dixon, Illinois.

According to the Department's web page:

“The Department’s mission is to protect and promote the lives of Illinois consumers.

We regulate most of the professionals and financial institutions that Illinois families depend on everyday - from banks to veterinarians and almost everything in between. We also work with the licensed professionals, members of the General Assembly, law enforcement officers, consumer groups and concerned public citizens to make sure that unscrupulous businesses and incompetent professionals can't take advantage of their customers and clients.”

According to the Department’s web site, no disciplinary action has been taken against any of the major participants in the Dixon, Illinois audits.

In responding to my Freedom of Information Request, they simply said, “Pursuant to the Act [Illinois Freedom of Information Act], your request does not seek to produce a particular public record.”

Two of the people I inquired about have active licenses, one has an inactive license and one has not renewed his license.

Interestingly, Ronald J. Blaine, one of the partners doing the audits was previously disciplined on February 28, 2000. The reason for the disciplinary action: “[Mr. Blaine] [a]llegedly authorized the issuance of an unqualified opinion on financial statements that may have failed to fully disclose the financial conditions of one company.”

That sounds very similar to what occurred in Dixon, Illinois. The Department though would not tell me the name of the company the partner was auditing for which he was reprimanded.

Another partner, while not disciplined, has allowed his CPA license to become “inactive.” A search on the Internet though shows he continues to use the CPA designation. Here’s one of his web sites:

“For tax preparation in Sterling, Illinois, you can count on Samuel S. Card, CPA at Samuel S. Card, CPA P.C. Samuel S. Card, CPA assists taxpayers and small businesses with taxes in Sterling, Illinois and the surrounding communities. Whether you are an individual or a local business in or around Sterling, Illinois, Samuel S. Card, CPA has years of valuable experience as an IRS registered tax preparer.

Contact Samuel S. Card, CPA, tax filing specialist in Sterling, Illinois, for help with your taxes.”

I called Mr. Card’s office to see if he was still working. A woman answered the phone. When I questioned her if Mr. Card was practicing as a CPA, she indicated he was not. She said he was working as an accountant.

I’m not sure how the Illinois Department of Financial and Professional Regulation can, “make sure that unscrupulous businesses and incompetent professionals can't take advantage of their customers and clients” if there is no “particular public record” available about an investigation into this incredible failure to find a $53 million fraud that occurred over a 22-year period.