Taylor, Bean & Whitaker Plan Trust v. PwC

PwC settled the Taylor Bean Whitaker fraud case. The terms of the deal are still confidential, but we will see if they somehow leak.

PwC never audited Taylor Bean instead they audited Colonial Bank.

Who sued PwC?

A bankruptcy trustee for Taylor Bean Whitaker sued PwC claiming that they failed to detect fraud. The trustee sought $5.5 billion in damages. The trustee claimed that PwC was negligent in not detecting a massive fraud scheme that led to the collapse of Taylor Bean and Colonial Bank in 2009.

PwC’s other looming problem from the case

The bankruptcy trustee for Colonial Bank and the FDIC sued Pwc in 2012. That case will go to trial in February of 2017.

What was PwC’s role

PwC’s role in all of this was that they were auditing Colonial Bank. Colonial Bank was one of Taylor Bean’s largest customers.

Taylor Bean’s trustee believes that PwC had some responsibility in the fraud because if they had conducted a proper audit of Colonial Bank, the fraud that Taylor Bean was perpetrating could have been stopped.

What the experts were saying

An expert witness associated withe case accused PwC of utilizing underpaid rookies to audit complex accounts. This makes sense because if you have ever worked in a big 4 accounting firms, you know that the audit associates do most of the audit work.

The expert also stated that PwC relied on inadequate evidence in testing a loan and that they failed to test an account for existence when opining on internal controls.

He also said that the PwC audit partner failed to use a standard of due care.

What was PwC’s stance

PwC’s stance is that it was not their job to detect fraud. That even though they were the auditor of Colonial Bank that they could not overcome collusion at Taylor Bean.

Collusion is very hard to detect because if everyone in management is thinking of ways to defraud the company and fool the auditors, then it is hard to overcome that.

What has happened to date

The case went to trial which is very rare for a big 4 accounting firm. Accounting firms typically settle because the reputations can be significantly damaged. As details of cases leak, it shows the inner workings of the accounting firm. The big 4 accounting firms don’t want clients to know how they work, and they also don’t want partners to flee the firm fearing that the firm might go under.

The case was steadily damaging PwC’s reputation because they have a couple other billion dollar cases looming as well. They are facing a billion dollar case with MF Global, and they still face the lawsuit with the FDIC and Colonial Bank’s bankruptcy trustee.

Conclusion

In conclusion this was the best possible outcome for PwC. They need to move on from this case. It was doing nothing but damage to their reputation.