Top accounting firms admit breaking conflict of interest rules
New York | The big four accounting firms have admitted hundreds of violations of regulations designed to protect the independence of their audit work, following the introduction of new disclosure rules in the US.
The admissions come as the Public Company Accounting Oversight Board urges companies and investors to pay greater attention to the findings of its annual inspections of audit firms, the latest round of which are expected to be released in the coming weeks.
immediate family to make thorough financial disclosures, for example of their investments, and they ban employment and financial relationships with audit clients that could impair the firm’s independence.
PwC said on Monday that it had identified 129 breaches of independence rules affecting 74 clients and PCAOB inspectors had found a further one themselves while inspecting audit work in 2022. The figures were included in an update to PwC’s audit quality report, published on its website.
Deloitte said in its audit quality report last month that it had told PCAOB inspectors of 129 breaches across 78 clients in 2022 – affecting approximately 3 per cent of its US audits – and 107 across 53 clients in the 2023 inspection cycle. EY also said it had found independence violations affecting 3 per cent of its audits in 2022.
US regulators require audit firm staff and their immediate family to make thorough financial disclosures, for example of their investments, and they ban employment and financial relationships with audit clients that could impair the firm’s independence.
PwC said on Monday that it had identified 129 breaches of independence rules affecting 74 clients and PCAOB inspectors had found a further one themselves while inspecting audit work in 2022. The figures were included in an update to PwC’s audit quality report, published on its website.
Deloitte said in its audit quality report last month that it had told PCAOB inspectors of 129 breaches across 78 clients in 2022 – affecting approximately 3 per cent of its US audits – and 107 across 53 clients in the 2023 inspection cycle. EY also said it had found independence violations affecting 3 per cent of its audits in 2022.
KPMG is the only big four firm not to have stated its figures, which will become public in the PCAOB’s forthcoming inspection reports for 2022. The PCAOB decided last year to begin routinely including data on independence violations.
PwC, Deloitte and EY all said that they had looked into each violation and concluded there were no cases in which the independence of an audit was actually compromised. A person familiar with the situation at PwC said one example was the spouse of a staffer holding a cash balance on payments app Venmo, while PwC was auditing Venmo’s parent company, PayPal.
‘Technical violations’
Deloitte said the most common instances of non-compliance were “related to financial relationships and employment relationships of approximately 145,000 professionals monitored”.
“I would characterise them as technical violations,” said Dennis McGowan, vice-president of the Centre for Audit Quality, which represents large US accounting firms. “These firms are big, with a lot of people in them, and they have put in the controls and systems to track people’s compliance, which is why these are almost always self-reported items.”
A PCAOB spokesperson said: “Auditor independence underpins the integrity of our capital markets and is essential to ensuring investors can trust the financial statements they rely on to make decisions.”
PwC’s vice-chairman, Wes Bricker, said its compliance programmes “often go beyond regulatory requirements”.
The firm’s audit quality report update on Monday also revealed that PCAOB inspectors had found flawed work in 9 per cent of PwC audits it examined in 2022, where its staff failed to carry out all the procedures required to justify their audit opinion. That is twice the rate of 2021, but remains the lowest among the big four.
EY admitted in November that its PCAOB inspection report for 2022 would show a deficiency rate of 46 per cent, a figure it deemed “unacceptable”.
Brazen NDIS ripoff: Qld man rorts $434k from kids
A heartless Queensland man who bought two Brisbane homes with more than $400,000 he siphoned from Federal government coffers earmarked for disabled kids from his community, has been jailed.
Jonathan Nguyen, who came to Australia as a child as a refugee from Vietnam, appeared in the District Court in Brisbane on Thursday before Judge Katherine McGinness.
The court heard he defrauded the National Disability Insurance Scheme of $434,807 over five-and-a-half months between October 2020 and April 2021.
The court heard that the 37-year-old targeted vulnerable members of the Vietnamese community in Inala, abusing the trust he had gained when he worked as a disability support officer with a local provider company.
“You consistently claimed that you had rendered services - on some occasions adding up to more than 60 hours per day - clearly inaccurate,” Judge McGinness told him during sentencing.
“But for some reason you thought that you wouldn’t get caught, which is usually the way when people commit offences.
“It is clear that your offending was motivated by greed”.
Nguyen used an alias to submit 310 false invoices to the NDIS for services related to 21 NDIS participants, mostly children, fraudulently claiming for 6907 hours service worth $434,807.
He used the money to buy a “property portfolio”, of two houses in Springfield and Heathwood, which have since been sold in a bid to repay debts to the government.
He attempted to avoid detection by spreading his invoices over four provider companies.
Nguyen, who previously worked in aged care, was arrested by police on June 10, 2022 and spent one night in the watch-house before he was freed on bail the next day.
Commonwealth prosecutor Sunny van den Berg submitted the court that if the government were forced to do compliance checks with all NDIS payments it would be costly.
She added that NDIS fraud was increasing.
“The NDIS system is an honesty-based system and introducing thresholds and compliance checks into the system would be very expensive and burdensome to the Commonwealth, and would likely delay legitimate payments, thereby giving rise to potential hardship to those who need the services,” Ms van den Berg said.
Ms van den Berg also submitted that some of Nguyen’s victims had their funding depleted by his frauds, and Nguyen was motivated by greed alone and his crimes were “sophisticated, persistent and calculated”.
“This offending was very brazen, he was claiming an extraordinary amount of money in a short period of time,” Ms van den Berg.
“He was not operating any legitimate business,” he said.
Defence barrister Tim Ryan KC told the court Nguyen was remorseful and had written a letter of apology, filed in court.
Nguyen pleaded guilty to 21 charges of dishonestly causing a loss to the Commonwealth and four counts of attempting to cause a loss to the Commonwealth, which relates to his failed bid to claim a further $11,000.
He was sentenced to four years’ jail for the 21 charges, and two years for the four lesser charges, with a non-parole period of one year.
He has been ordered to pay reparation of $330,189.
A sum of $250,000 is sitting in his lawyer’s trust account ready to be paid to the government, leaving around $80,000 outstanding, Mr Ryan submitted.
The $250,000 was the proceeds of the sale of the two homes, his car and a loan from his partner, Mr Ryan said.
A Perth woman is fuming after she ordered $6,000 worth of designer dresses and handbags — many vintage and “irreplaceable” — only to find nothing inside the Australia Post delivery box.
Deborah Levy is an experienced secondhand seller and told Yahoo News Australia that she regularly buys and sells Camilla Frank designer clothing. “I bought a parcel worth about $6,000 for $2,000 from a guy I have bought from before,” she explained, saying the clothing belonged to the seller’s mother, wife and sister “who wanted to offload their clothes".
“He sent it from his local post office who for some unknown reason charged him a fortune for the box and put 13kg on the box, when in fact the box should have not been more than four to five kilograms, and that package should have cost $20 to $25 max to send it express.”
Ex-PwC partner sues firm over retirement payments
A former PwC partner is suing the consulting giant in the NSW Supreme Court demanding the restoration of retirement payments lost during the tax leaks scandal in a case that could open the way for other partners to pursue lucrative pension rights.
Paul McNab, formerly tax partner for 22 years, is challenging a key clause in the firm’s retirement plan that denies pension payments to partners – which are worth around $140,000 a year – if they leave to work for a “major competitor”.
Mr McNab’s access to the pension plan was cut off after he was named by PwC as one of four senior personnel who appeared in emails associated with last year’s tax leaks scandal.
PwC’s retirement payment plan is lucrative and secretive. It pays more than 625 former partners $140,000 a year – some for life – out of the continuing profits of the firm. It is designed to reward former personnel for their work, stop them joining rivals and encourage loyalty to PwC long after they have departed. It has also raised conflict concerns.
Mr McNab’s civil action, if successful, could lead to other former PwC partners who have had their payments paused or reduced due to working at different professional services firms to also sue. This might involve hundreds of ex-partners and payments worth potentially millions of dollars a year.
Mr McNab alleges that PwC denied him access to retirement payments when he left to join DLA Piper in 2020 by invalidly deeming the law firm as a “major competitor” of PwC.
He further argues that PwC then wrongly cut off his access to the plan when he felt obliged to resign from DLA Piper after the firm named him in relation to the tax leaks matter.
He is seeking the total amount of his unpaid retirement payments dating back to when he initially left the firm in 2020, plus interest, as well as the ongoing payments he is entitled to. The amount of money involved was not specified in the legal pleading.
The lawsuit, filed in the NSW Supreme Court on January 25 on Mr McNab’s behalf by Asia Lenard of Quinn Emanuel Urquhart & Sullivan, brings unwelcome publicity to PwC as it seeks to move on from the tax leaks matter and rebuild its public standing.
A spokesman for PwC said, “it would be inappropriate to comment on a matter before the courts”. The firm has held the long-standing view that partners freely agree to the partnership agreement and its rules when they sign up.
Mr McNab declined to comment. The case is the third by a current or former PwC partner that was named by the firm as part of its response to the tax leaks scandal.
Last September, PwC partner Richard Greggsuccessfully sued the firm for wrongly naming him as part of a separate group of eight senior partners who it said had either been involved in the tax leak scandal or had not adequately addressed matters.
Another former partner, Neil Fuller, has withdrawn an action against PwC filed last year in the NSW District Court. Comment has been sought from Mr Fuller’s lawyers.
DLA Piper ‘not validly designated’
The PwC tax leaks matter involved a former tax partner sharing secret government information within the firm. It was then used to develop schemes to sidestep new tax laws he was helping to develop. The scandal rocked the firm’s Australian operation and increased scrutiny of the multibillion-dollar consulting sector.
Mr McNab’s statement details how he became a partner at what is now PwC in 1998 and retired in 2020 “after 22 successful years” at the firm. When he informed the firm he intended to move to DLA Piper as a partner, he was told that his “entitlement to post termination payments [would be] suspended while he remained a partner of DLA Piper, and potentially reduced thereafter,” according to the legal filing.
He argues that “DLA Piper was not a ‘major competitor’ of PwC” and “was not validly designated as a Listed Firm” in the firm’s partnership agreement.
After the extent of the tax leaks scandal was made public last May, PwC told its partners and a Senate committee that four former partners, including Mr McNab, who were “involved in the breach of confidential Australia Tax Office information” had left the firm.
The firm told the Senate committee that it had “ceased making, and does not intend to make, any future payments to any of the four individuals” while also conceding that the four had left PwC “for reasons unrelated to their involvement in this matter.”
In its summary of the legal investigations into the tax leaks matter, PwC stated that in mid-2015 Mr McNab revealed to at least one client the confidential information that the firm was helping Treasury design new tax laws and the starting date of those laws.
“[The] use of that information by Mr McNab to market tax services to clients was a conflict of interest and an additional breach of confidentiality,” he firm said in its statement.
Mr McNab, who has denied any wrongdoing, complained that the firm did not warn him that he would be named to partners and the Senate inquiry. He also said that he had “trusted that the information shared with me as a partner of the firm would comply with any confidentiality agreements that may have been in place with Treasury.”
Despite this, he decided it would be “in the best interests of” the law firm and departed DLA Piper by mutual agreement ahead of his name being disclosed to the PwC partnership and the Senate. He then launched a private tax practice about three months after leaving the law firm.
‘No legal basis’
The legal filing argues that PwC “did not state any basis (legally or otherwise) on which [Mr McNab] was disentitled to Post Termination Payments.”
In November, PwC, via law firm Allens, wrote to Mr McNab to confirm that it would not make the retirement payments because he was “relevantly involved in the unauthorised use of confidential information”.
“[W]hile a partner of PwC, Mr McNab was relevantly involved in the unauthorised use of confidential information belonging to the Federal Government’s Department of the Treasury (Treasury),” the PwC letter states, according to Mr McNab’s legal filing.
“By reason of this involvement, Mr McNab breached obligations owed to PwC, including (amongst others) those under the Partnership Agreement. In failing to comply with his obligations owed to PwC … Mr McNab has caused PwC loss and damage well in excess of all future post termination payments … that PwC may have otherwise paid to him.
“Consequently, our client does not propose to pay to your client any Payments After Terminations, including retroactively to 1 August 2023.”
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