11 January 2018
PwC is facing a trial to determine how much it has to pay for failing to detect a lengthy and possibly multi-billion dollar fraud at a bank it audited.
A US federal judge has ruled that PwC’s failure to identify the fraud involving made-up mortgages at Colonial Bank amounted to professional negligence.
In the trial, Judge Barbara Rothstein criticised PwC for failing to investigate “illogical dates” or check whether almost 20% of Colonial’s loans were genuine.
The second trial will decide how much PwC owes the Federal Deposit Insurance Corporation, the organisation that spent $2.8bn when it stepped in to protect Colonial depositors after the bank’s 2009 collapse.
Aziz Rahman, founder of Rahman Ravelli, said the case may send a shock through the auditing world.
But he added: “Any individual or firm that audits a company has a responsibility to ensure that it does so in a way that identifies any problems and makes sure that they are investigated.
“This is an unusual situation as companies are very often barred from suing their auditors for failing to detect fraud if, as happened here, company employees were involved in the fraud. This case is different because the bank failed and it has been left to the FDIC to recover money for taxpayers who have covered Colonial’s losses.
“This case is both unusual and particular to the US. But it emphasises the need for auditors to ensure they take the right legal advice if they do suspect any wrongdoing at a company they are auditing – and highlights the dangers of failing to seek such advice.
“As a firm, we have been making this argument to auditors for years.’’
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