Are the Big 4 audit firms practicing what they preach about trust and integrity?
Trust is earned, not bought, and will disappear quickly if the story keeps changing.
On July 2, 2018, PwC U.S. was ordered by a federal judge to pay $625 million to the Federal Deposit Insurance Corporation for failing to follow auditing standards and, as a result, missing a fraud involving non-existent mortgages that caused the failure of Alabama-based Colonial Bank in 2009.
On August 26, 2016, PwC had also reached a confidential settlement mid-trial in the $5.5 billion negligence case brought against the firm by the Taylor, Bean & Whitaker Plan Trust in 2012 for PwC’s failure to spot the collusive fraud with Colonial Bank. In both cases executives were jailed.
During the Colonial Bank trial Lynn Turner, a former chief accountant for the Securities and Exchange Commission and a witness for the plaintiffs, told the jury that PwC had violated auditor independence standards three times. One of the PwC senior managers, T. Brent Hicks, was hired by Colonial in a top financial oversight position. Turner testified that as a result, PwC was not independent in 2005 and 2006. PwC tried to suppress Turner’s testimony, but the court denied the motion.
The court also determined pre-trial that PwC was not independent, “as a matter of law,” for 2004 because a contract between PwC and a Colonial subsidiary included prohibited indemnification language, a violation of SEC rules. Finally, after PwC objected, the judge prevented testimony about a third potential independence violation for the 2008 audit.
The Colonial damages award was the largest ever made against an accounting firm. In December of 2017, the firm agreed to pay $335 million instead to settle all claims of “professional negligence,” including for two more covered years that were not a part of the first trial in exchange for dropping its threat of an appeal. PwC did not confirm or deny the claims.
Martin Gruenberg, the current FDIC Chairman was an FDIC board member at the time as well as a former FDIC Chairman from 2012 and 2018 and a Vice Chairman between 2006 and 2011 when the Colonial Bank fraud in conjunction with Taylor Bean & Whitaker, a mortgage originator occurred. Gruenberg dissented from the Colonial settlement because it did not require PwC to admit liability.
Wes Bricker started his career at PwC as an intern. He was a professional accounting fellow in the SEC Office of Chief Accountant in 2009 when Colonial Bank failed. Bricker returned to PwC in 2011 and then came back to the SEC in 2015 as Deputy Chief Accountant and, finally, Chief Accountant in 2016.
In July 2019, Bricker returned again to PwC as a Vice Chairman and PwC's new audit/assurance leader for the U.S. and Mexico. It’s the first time in my long memory that an SEC Chief Accountant returned to a Big 4 firm in a line P&L position. Bricker could become PwC U.S. Chairman, even Global Chairman, given his young age. He brought a whole crew from the SEC with him, even a few folks who had worked at other firms before their SEC stints. In particular, Brian Croteau, who had a special focus at the SEC on auditor independence issues, is now PwC's Chief Auditor.
On the other side of the world
All the way on the other side of the world, in Sydney, Australia nearly 10,000 miles from PwC's New York headquarters, PwC down-under was in hot water with the Australian Tax Office.
In January 2023 Neil Chenoweth at the Australian Financial Review had reported:
Senior ATO officers were shocked at the speed with which multinationals set up new structures to avoid the reach of Australia’s Multinational Anti-Avoidance Law (MAAL), the Diverted Profits Tax and Hybrid mismatch rules] after it was introduced on January 1, 2016. By April the ATO was warning that foreign companies and some advisers were already “gaming the system” to avoid MAAL.
In September 2016 Deputy Commissioner Mark Konza had a furious response when he was shown a scheme to avoid MAAL during a visit to a big four accounting firm which was later identified as PwC.
It turned out that PwC Australia's former head of international tax, Peter Collins, had been sharing what he heard during confidential government briefings in 2015, 2016, and 2017, while he was bound by confidentiality agreements. He was participating in advisory groups for government to provide advice on its Base Erosion Profit Shifting (BEPS) measures to combat international tax avoidance.
Collins shared confidential documents including proposed legislation and policy positions with other PwC personnel both in Australia and overseas including in the U.S. and U.K., “who in turn disclosed [the information] to clients or potential clients” according to the Australian Tax Practitioners Board.
In January 2023, Collins was deregistered by the Australian Tax Practitioners Board for two years for dishonesty and for sharing confidential government briefings with PwC partners and clients. He also lost his job at PwC.
A PwC spokesman at the time told The Australian Financial Review the issue was limited to Collins:
“We acknowledge the TPB found that a partner of the firm did not comply with confidentiality agreements in relation to a consultation process with Treasury, which occurred in 2014."
The AFR story also cites an anonymous PwC source who said the documents were shared with only a small number of PwC staff, and that the TPB investigation did not find that any client arrangements or structures were impacted in connection with the matter.
The PwC Australia tax story is now a non-stop news fest. AFR professional services correspondent Edmund Tadros jumped in and has been producing incredible breaking news almost every day. By May 2023 the story had blown up.
‘For your eyes only’: How PwC leaks helped global clients dodge tax
Accounting giant PwC Australia charged $2.5 million in fees to advise 14 clients how to sidestep new multinational tax avoidance laws in 2016, relying on leaked intelligence from disgraced tax partner Peter Collins.
PwC emails released on Tuesday in response to questions on notice by Labor Senator Deborah O’Neill show multiple partners of the big-four firm were aware Collins was leaking secret government documents and praised him for his revelations.
The Tax Practitioners Board (TPB) released 144 pages of heavily redacted PwC emails, which show that between 2014 and 2017 Collins repeatedly shared confidential information that became a key driver in the firm’s plan to win new work from US tech firms that would be hit by the new Multinational Anti Avoidance Law (MAAL).
In a January 2016 email summarising the Australian firm’s “North American project”, an unnamed PwC partner outlined how successful the multi-year endeavour had been in winning new, “brand-defining” clients for the firm.
“We got this outcome because … we were aggressive in telling these relationships they needed to act early (heavily helped by the accuracy of the intelligence that Peter Collins was able to supply us, and our analysis of the politics),” wrote the partner, whose name is redacted (bold emphasis their own).
Ahhhh… As I predicted.
