• Botta v. PricewaterhouseCoopers LLP, Case 3:18-cv-02615-RS

    By • Jun 12th, 2019 • Category: Audit Firm Management, Audit Quality, PricewaterhouseCoopers, Pure Content, The Case Against The Auditors

    Mauro Botta brought an action in district court in California against PricewaterhouseCoopers LLP alleging that PwC wrongfully terminated him in retaliation for a whistleblower complaint he made to the Securities and Exchange Commission about PwC’s auditing practices.

    There’s been a lot written about the case, which is ongoing.

    PwC Whistleblower Alleges Fraud in Audits of Silicon Valley Companies

    After more than a dozen years auditing technology companies in Silicon Valley, Mauro Botta took an extraordinary step: He decided to become a whistleblower.

    He drafted an account of what he had seen and experienced as a senior manager at PwC, the accounting firm also known as PricewaterhouseCoopers. Then, in November 2016, he submitted it confidentially to a federal regulator, the Securities and Exchange Commission (SEC).

    Under penalty of perjury, Botta described example after example of sloppy if not misleading bookkeeping and weak internal controls at businesses in the Valley.

    Botta told the SEC that, when it came to their accounting, companies he observed generally had a “low level of competence.” (He explained to the Project On Government Oversight that he was referring to small and mid-sized companies.)

    But the prime focus of Botta’s whistleblower complaint wasn’t the tech companies. It was something deeper and more far-reaching: the culture of auditing at PwC.

    Botta alleged that, to keep corporate managers happy and to avoid losing their business, PwC was pulling its punches—trying not to flag too many problems with companies’ internal controls.

    He said he was concerned about “the risk of collusion between auditors and management in this valley . . . with management paying us the fees and auditors picking and choosing what to call an audit issue.”

     

    How PricewaterhouseCoopers Learned the Importance of Whistleblowing, the Hard Way

    Posted on July 6, 2018 by Mike Bothwell

    Whistleblowing can reveal tons of problems and mistakes, so it’s no wonder so many companies don’t like it.

     

    Madison Marriage and her colleague at the Financial Times picked up the story, as part of her continuing coverage of the pressures the Big 4 are under in the U.K.

    A dangerous dance: when auditors are too close to the client

    Firms can be too focused on pleasing customers who are also a source of consulting income

    Madison Marriage and Jonathan Ford

    AUGUST 28, 2018

    …In Mr Botta’s case, he said that PwC auditors were routinely correcting their clients’ accounts while they were being drawn up, which meant that when it came to auditing those documents, they were in effect marking their own work. His concern was that PwC partners were compromising their objectivity. He also believed that weaknesses in the internal controls at some of these companies were not flagged to shareholders by PwC when they should have been.

    To outsiders, his claims may sound esoteric. But what was potentially more revealing was the feedback Mr Botta received on his performance in 2014, two years after he started raising these concerns internally.

    A PwC document — seen by the Financial Times and first reported by the Project on Government Oversight — detailing the results of a peer review conducted that year shone an intriguing light on the firm’s behavioural expectations for its aspiring partners.

    “Until he gets the clients pounding the table for him, I don’t think he’ll ever make partner,” one colleague said.

    “Build the relationships where the client would never want to leave PwC,” said another. “If he were really responsible for bringing in the revenue and keeping clients, as partners are, he would have to adapt fast,” added a third.

     

    Marriage wrote about it again to pick out one particularly colorful anecdote cited by Botta in his SEC whistleblower filing.

    Whistleblower accuses PwC of failings over private jet trip

    Former auditor says ‘outrageous’ incident highlights independence issues

    Madison Marriage

    MARCH 24, 2019

    A PwC whistleblower has accused the Big Four accounting firm of serious independence failings after it allowed its auditors to fly in a private jet owned by a major audit client, US-listed chipmaker Micron. Mauro Botta, a former PwC auditor who is suing the firm in the US for wrongful dismissal, alleged that a photo of the Micron audit team standing in front of the private jet was singled out for praise during a meeting in California in 2016.

    The incident is one of several alleged audit lapses involving a handful of PwC’s Silicon Valley clients that were highlighted in a document sent by Mr Botta to the US Securities and Exchange Commission as part of a whistleblowing complaint against his former employer in 2016. The document shines an intriguing light on cultural standards within PwC, and has raised further questions about whether large accounting firms are too close to the companies they audit at a time when the industry is under unprecedented scrutiny.

    In the document, Mr Botta said the photo was shown to PwC’s San Jose office as an example of “best practice” as it demonstrated the auditors had a “great relationship” with Micron. Micron’s chief executive had offered to fly the PwC team to San Jose in his private jet so they did not miss an “internal firm party”, according to Mr Botta’s statement.

     

    The case has also been covered in Forbes and by Brenna Nelinson for The Advocate, the magazine of the law firm Bernstein Litowitz and Berger.

    It’s All About Relationships

    As the Interests of Accounting Firms and their Clients Become More Interconnected, Errors and Conflicts of Interest Abound

    By Brenna Nelinson

    It is also important to understand that — contrary to popular belief — many auditors do not design their audits to ferret out fraud. A 2018 global study on occupational fraud found that only four percent of fraud is discovered by external audits. As a PwC audit partner famously testified under oath in 2016, “our audits are not designed to find fraud.”

    Indeed, accounts from inside the “Big Four” accounting firms suggest that auditors often exploit flexibility in accounting rules to do the opposite: paint an overly rosy picture of the client’s finances. Along with such distortion of company finances can come retaliation against auditors who attempt to do the right thing.

    For example, a recent Financial Times article recounts how a former PwC auditor, Mauro Botta, alleged that he experienced professional retaliation for raising internal concerns about the objectivity of the PwC partners performing audits for public companies. Botta was told that “you want these guys to like you,” and that he should prioritize generating revenue and nurturing client relationships and “build the relationships where the client would never want to leave PwC.” Ultimately, in response to client requests, Botta was removed from audits in which he raised concerns about audit accuracy.

     

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