Accounting giant, PriceWaterhouseCoopers (PWC) has been ordered to pay $625 million in damages, by an Alabama judge, in the United States of America for their negligence that led to one of the largest bank collapses in the US.
The award that is among the biggest for accounting malpractices, is in respect to the 2009 collapse of the Colonial Bank, an Alabama-based bank and was brought by the Federal Deposit Insurance Corporation (FDIC), a US government agency that insures consumer bank deposits against losses.
FIDIC said it lost about $2.8 billion from the collapse of Colonial, one of the 25 biggest banks in America then with $26 billion in assets and 340 branches.
The ruling sets interesting benchmarks for Uganda where over 5 banks in the recent past, we closed by Bank of Uganda but the auditors have walked away scot-free and in some cases have been awarded lucrative deals to either wind up the banks and or carry out forensic audits.
Despite the sensitive role of the audit firms and a regulatory requirements for most businesses especially financial services firms and listed companies, the role of the regulating these accounting firms is not clear.
The award, yet another slap in the face of the Big 4 accounting firms, comes on the heels of another record fine of £6.5 million by the British accountancy regulator over deficiencies in its audits of BHS, another lender in the UK before the retailer collapsed.
According to Judge Rothstein, Colonial Bank’s failure was accelerated by a “massive fraud” bank staff and Taylor, Bean & Whitaker, a now-failed mortgage company in the US. The mortgage company had overdrawn its accounts at Colonial to cover cash shortfalls and then covered up these, by fraudulently selling thousands of mortgages to Colonial Bank that it had already sold to other investors.
The fraud began in 2002 and was exposed in 2009, when
Taylor, Bean & Whitaker collapsed in 2009 after the fraud that is said to have run from 2002 to 2009 was exposed. Colonial Bank followed suit shortly after.
PWC was the external auditor of Colonial Bancgroup, the parent company of the lender. The judge ruled that PWC violated its professional duties with negligent audits between 2003 and 2005 and again in 2008, which fell during the years of the fraud.
The FDIC lodged negligence claims against PWC in 2012.
UK financial reporting watchdog criticizes KPMG, PwC, Ernst &Young and Deloitte over failing standards
Just last month, the Financial Reporting Council (FRC), the UK regulator for transparency and integrity in business said it was “disappointed” with the ‘Big 4’ auditing firms over declining auditing standards.
In what is now becoming an increasing assault on the holier-than-thou reputation of the ‘Big 4’ that were previously the personification of accounting integrity, FRC faulted the 4 firms for “failure to challenge management and show appropriate skepticism across their audits and poorer results for audits of banks.”
While FRC noted problems at all the Big 4 firms, it singled out KPMG for the consistent declining standards in their work.
“There has been an unacceptable deterioration in quality at one firm, KPMG. 50% of KPMG’s FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year. As a result, KPMG will be subject to increased scrutiny by the FRC,” said the statement.
While the rebuke on KPMG was for work done in the UK, the auditing firm has had to pay over $1 billion in fines across the world since 2003.
PWC was also called out, as only 82% out of 586 audits inspected compared with 93% in 2016/17 met standards. Only 76% of the inspected 413 audits done by Deloitte met the standard compared with 78% in 2016/17.
Out of the 347 audits done by Ernst & Young including a total 55 companies listed on the London Stock Exchange, only 67% met standards, compared with 88% in 2016/17.
Additional reporting from Wall Street Journal