Deloitte – Tolerant And Forgiving of Bad Accountants

By • Nov 10th, 2008 • Category: Audit Quality, Deloitte, PricewaterhouseCoopers


It’s been an interesting few days.  I’ve finally stopped receiving poison pen letters from PwC apologists because of my doubts about their bandwith and qualifications for the TARP work.  All last week I pondered the implications of the Deloitte insider trading scandal before events overtook me and I finally had to post something more than Tweets on the issue.

Now the Deloitte apologists are vilifying me.
And it seems that everyone learned a new word last week:
Salacious: Arousing or appealing to sexual desire or imagination…
I can’t remember when the word was first used, but to have my posts about audit, about PwC and Deloitte, called “salacious” is an interesting compliment.  I’ll take what I can get.
But I digress.
As my choice of a titillating (pleasantly stimulating or exciting) title today suggests, I have more to tell you about Deloitte, their tone at the top and why the culture of the firm as a whole deserves  a closer, more critical, look.
In addition to the possibility there was tolerance at the top for what Mr. Flanagan is accused of doing, there are two other cases I’ll ask you to consider.

A senior Deloitte accountant who audited Adelphia Communications Corp.’s fraudulent financial statements in 2000 has been reinstated by the Securities and Exchange Commission after being banned from auditing public company statements for two years.

William Caswell, who headed a team of 20 accountants and tax professionals and reported to Deloitte’s engagement partner during Adelphia’s audit in 2000, assisted the SEC investigation into shortcomings surrounding Deloitte’s 2000 audit and “has shown good cause for reinstatement,” a June 25 commission order said…

Deloitte spokeswoman Deb Harrington declined comment. In a response to a request to speak with Mr. Caswell, Ms. Harrington said he declined comment. Mr. Caswell, as part of his 2005 settlement with the SEC, neither admitted nor denied wrongdoing.


William Caswell, suspended by the SEC for the Adelphia audit, where Deloitte paid $50 million to the SEC to settle charges against the firm, was still working for Deloitte when the SEC reinstated him?
And the second case is more recent.  From an article in Compliance Week on November 3, 2008.
The PCAOB slapped Deloitte & Touche Audit Partner Christopher Anderson with a one-year suspension from public company audit work, a $25,000 fine, and a one-year restriction on his audit abilities when his suspension expires for his role in the audit of 2003 financial statements for Navistar Financial Corp. The disciplinary order does not make any findings against the audit firm…


Deloitte representative Deborah Harrington said Anderson remains with Deloitte “with responsibilities consistent with the settlement.” The disciplinary action suspends him “from being associated with a registered public accounting firm,” which specifically is Deloitte & Touche LLP, the firm that is registered with the PCAOB.


Looks like Mr. Flanagan may have resigned too soon.  I’m sure given the exposure the firm also has on the insider trading scandal, if he had played his cards right, they would have kept him around in a “desk job. ” Maybe he could have collected a paycheck wherever Mr. Caswell and Mr. Anderson are working, perhaps the Engagement Risk and Quality Office, so he could be around to help Deloitte defend itself.

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20 Responses »

  1. Let me be the first to congratulate you on your “salacious” blog. I note that there is no question mark at the end of this title. DT would probably encourage you to “realign” your support (I mean, focus) going forward so that it is not so (what was the word?) “slanted.”

  2. Deb declined to comment ?!? Now that’s news in and of itself, isn’t it? Couldn’t Deb have said that Deloite decided to “realign” Caswell’s and Anderson’s responsibilities in a manner consistent with the strategic business objectives of the firm? Come on, Deb. What’s up, girl?

  3. @10:33

    Ms. Harrington does not have an easy job, for sure. And yes, I was surprised to to see a “no comment.” But I guess sometimes there is nothing a reasonable person can say.

  4. Francine:
    The difference is that Anderson “took one for the team”, Flanagan didn’t.

  5. Deb should’ve said – “listen, Mr. Flanagan is screwed and Deloitte may very well be too. Time will tell but we will take a bunker mentality.”

  6. @ Independent Accountant

    You don’t think that over the years, thirty years , that Mr. Flanagan has been at Deloitte, many of them as a partner, that he has not taken a hundred bullets for the firm? He was responsible for major acounts like Sears, Allstate, ISG, and Walgreens. Maybe Mr. Flanagan will lessen any penalties he might face by spilling lots of beans on Deloitte and his fellow partners. After all, since Deloitte is suing him and not paying him, he now has nothing to lose.

  7. "The disciplinary action suspends him “from being associated with a registered public accounting firm,” which specifically is Deloitte & Touche LLP, the firm that is registered with the PCAOB."

    Based on the structure of the US Firms, they probably made him a HR Partner within Deloitte Services LP, which I've heard they've previously done with another partner going through something similar.

  8. @927…

    So in that instance DT complied with the letter of the order but certainly not the spirit.

  9. http://dealbreaker.com/2008/11/get-that-damn-light-off-me.php#comments

  10. What makes Flanagan did is different than the other two scenarios. You can make mistakes in an audit. There’s always an acceptable amount of audit risk. I am not making excuses for the two other partners, but it does offer a potential explanation. What Flanagan did was deliberate. I hope there is a real investigation here. The public deserves at least that much.

  11. […] Deloitte seems to have a lack of will to enforce its policies for tenured, powerful members of its partnership or to kick them out of the firm when they’ve been found guilty of sins against the profession and their clients, the shareholders. […]

  12. […] Mr. Fletchall’s.  Is he already back auditing again?  Did he ever leave KPMG? The firms are so forgiving of bad […]

  13. […] Mr. Fletchall’s. Is he already back auditing again? Did he ever leave KPMG? The firms are so forgiving of bad […]

  14. […] Mr. Fletchall’s. Is he already back auditing again? Did he ever leave KPMG? The firms are so forgiving of bad […]

  15. […] you really expect a firm that looks the other way at their own partners’ self-dealing and that protects partners who have been found complicit in scandals to insist on strong ethical and fiduciary standards in […]

  16. […] famous Floyd Norris and his undercover buddy at the SEC couldn’t do it.  It’s easier if you keep the guys in “time-out” on the payroll like Deloitte and EY do, rather than kicking them to the curb like KPMG did.  One KPMG ingrate […]

  17. […] time, take their measly million or two out each year in cash and hope they don’t end up like one these guys.  I saw that attitude at PwC regarding Japan. But I keep refusing to believe […]

  18. […] liability.” (fm: Yes, but hiding identity of responsible partner makes it easier for you to keep paying them and reinstating them after sanctioning, suspension or other actions by those “multiple sources of […]

  19. […] new Deloitte partner called out many of Navistar’s prior accounting treatments, agreements, and their own firm’s advice and approvals from prior years, he was doing what many other audit teams were doing at the time:  Telling […]

  20. […] on the case. However, for a change, an audit firm seems to have acted decisively, and swiftly, to distance itself from a bad actor, get out in front of bad news, and try to do the right thing – for clients, employees, and the […]

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