Deloitte blamed in Monsanto whistleblower case

Deloitte’s client, Monsanto, was fined $80 million and forced to restate 3 years of its financials. The whistlebower’s lawyer Stuart Meissner  said that they wanted the SEC to put more pressure on Deloitte. Stuart Meissner said that Deloitte, as the public accounting firm of Monsanto, should have been able to spot this fraud and stop it. 

Deloitte and Monsanto have declined to comment on this case any further. 

The main issue in this case was that Monsanto did not have internal controls to track millions of dollars in rebates. They booked revenue for the rebates, but they did not book the costs associated with the revenues so they had misstatements related to this. 

Its a bit troubling that the SEC has not fined Deloitte as well. Its tough in these whistleblower cases because the whistleblower usually reports something internally. Then they also bring it up to the auditor, but the auditors do nothing because they don’t want to ruffle their client’s feathers. Nobody takes action and the whistleblower has to look externally for resolution to the fraud.

In order for the whistleblower to affect change they have to go to a regulator like the SEC to make sure the fraud stops. The main stakeholders that get hurt in these cases are shareholders and employees of the firm that hold stock in the company. Rarely do executives or auditors that were originally responsible for the wrongdoing get penalized. Its the company that gets fined which is passed along to shareholders. 

PwC Fined in UK over Cattles Audit

PwC was fined $4 million over its audit of Cattles which was a finance company in the UK. They were fined by the Financial Reporting Council which is an accounting firm watchdog in the UK.

This penalty came almost a year after PwC settled a lawsuit with Cattles. PwC’s Client, Cattles, almost went bankrupt as a result of its accounting problems. PwC did not adequately test Cattles’ loan book according to the regulators.

The audit partner Simon Bradburn was also fined. The firm also admitted some wrongdoing in this case.

PwC has had some serious legal issues this year with their recent settlement of the $5.5 billion Taylor bean fraud case also taking place this year. 

PCAOB finds Deloitte and PwC Deficient

In the PCAOB’s inspection reports this year they found that PwC was deficient in 12 audits while Deloitte was deficient in 13.

The majority of Deloitte’s deficiencies were in their ability to test controls. In some cases they didn’t even identify any controls. That is pretty worrisome based on the huge whistleblower case we just discussed.

PwC had deficiencies in 13 of its audits that the PCAOB inspected. They also struggled with testing controls. PwC also failed to test assumptions used in estimates. Deloitte had a similar problem. 

I remember when I worked at the big 4. Testing assumptions around estimates was always hard. Especially if you work on a Fortune 50 company. There are so many numbers in the financial statements that utilize estimates. It’s hard to identify them all and then make sure they all get tested properly.

The reports for EY and KPMG will be released later this year.