Audit Watchdog’s Failure to Do Its Job Leaves Economy at Risk
Media Contact: Tim Farnsworth, Chief Communications Strategist at POGO, [email protected] or 202-550-9402.
(WASHINGTON)—A new investigative report by the Project On Government Oversight (POGO) found that a little known government agency charged with oversight of the audit industry is failing to do its job.
POGO studied 16 years’ worth of the Public Company Accounting Oversight Board’s inspection reports on the U.S. arms of the Big Four audit firms—Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers— and found the board has cited 808 instances where the firms issued defective audits that shouldn’t have vouched for a company’s financial statements, internal controls, or both. The Big Four audit 99% of companies in the S&P 500.
Compared to the 808 instances of defective audits, the audit watchdog has brought only 18 enforcement cases, involving a total of 21 audits, against the U.S. Big Four or employees of the firms.
Congress gave the oversight board, established in 2003, the power to levy penalties against audit firms and individual auditors. POGO’s report shows that over the board’s entire existence it could have fined the Big Four a minimum of $1.6 billion but records indicate they have only been fined $6.5 million—less than one half of one percent of the potential fines.
Recent allegations of fraud at General Electric have drawn attention to corporate accounting practices and questions about the company’s century-old relationship with its auditor KPMG.
POGO found that KPMG had the highest percentage of botched audits compared to the other Big Four firms, yet the board has never fined KPMG.
“It’s unacceptable that the agency is taking such a light-handed approach in holding these large audit firms accountable,” said Danielle Brian, executive director at the Project On Government Oversight. “Exercising financial penalties against these firms might be the only way to get this industry on track. By failing to hold the Big Four accountable, the board is putting all Americans’ financial futures in jeopardy.”
Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that investigates and exposes waste, corruption, abuse of power, and when the government fails to serve the public or silences those who report wrongdoing.
We champion reforms to achieve a more effective, ethical, and accountable federal government that safeguards constitutional principles.