One year after MF Global “misplaced” $1.6 billion in customer funds, those funds still haven’t been recovered for investors. The money has allegedly been found, but that still doesn’t help customers who would like to get their misappropriated funds back.
The global audit firm would rather come off as stupid than complicit in the actions of whomever broke the law and stole MF Global customer funds. PwC prefers you believe they were “duped” and given false or no information when executives took on inordinate risk with little or no oversight, and took advantage of lax or relaxed internal controls to double down with other people’s money in the noble hope they could “save the company” for investors including Corzine’s true boss, Chris Flowers.
Interesting, isn’t it, that the auditors haven’t been asked hard questions by the SEC or other investigators? Francine suggests that PwC has likely been working quietly with regulators to sort out transactions that they should have been questioning when they were auditing MF Global. She even says that PwC has probably agreed to give up the goods on executives at MF Global in exchange for a promise of no prosecution.
Sounds great, right? Not so much. If Francine is right, this is nothing more than a large auditing firm covering its ass after failing in its performance of audits. Remember, the auditors are supposed to ensure that companies are reporting their financials accurately. And while it’s difficult for auditors to find fraud, that doesn’t mean it’s okay for them to look the other way when wrongdoing and shoddy accounting are right in front of their faces. No amount of after-the-fact assistance to investigators and law enforcement will make up for failure to live up to the professional responsibilities auditors are bound by.
Are you doubtful of Francine’s hypothesis? I’m not. She explains that this is exactly what PricewaterhouseCoopers did in prior cases. She writes:
In the case of AIG, PwC partners agreed to testify against their client in exchange for a smaller settlement. In the case of Huron, private litigation against the firm was dropped in exchange for making the embarrassing admission the client lied to them repeatedly. In both cases, PwC is still the auditor, collecting its fees.
This is a story we will likely see time and again. Auditors have an interest in making clients happy. The clients are the companies being audited, and they’re the ones who pay the audit fees. There is good reason for the auditors to look the other way and hope nothing goes wrong. Unfortunately, all to often, things go wrong and investors and consumers are the big losers.