Mayer Hoffman McCann Blows a Bunch of Hot GAAS (And a Serious Audit)

 I'm no auditor so perhaps it's out of line for me to say as much but since when is $8.89 million considered not significant? MHM blew it when it comes to the California city of Bell and the office of the state controller doesn't like the "rubber-stamp" approach - maybe the state controller needs a lesson in "same as last year" and a quick and dirty primer on how audits really work. As in they are a total farce and rubber stamps are the best we can do when we're not checking boxes and counting chairs in warehouses on New Year's Eve.

LA Times:

A prominent accounting firm's audits of Bell's city finances amounted to a "rubber-stamp," according to a state controller's study concluding that much of the alleged wrongdoing would have been detected earlier had the firm done its job.

The long-awaited report is being closely watched because Mayer Hoffman McCann audits the books of dozens of government agencies in California and has 30 offices nationwide. Officials at several agencies, including California's public employee retirement board, have said they were awaiting the controller's study to help determine whether they would consider changes in their auditing contracts.

The controller's office found that MHM failed to comply with 13 of 17 "fieldwork auditing standards" when reviewing Bell's books in the 2008-09 fiscal year. The firm focused mostly on comparing financial numbers year to year rather than looking at potential for inappropriate or illegal activities, the controller's report said.

Don't trip, the California Board of Accountancy is on it. Surely.
Chiang said his office is forwarding the report to the state Board of Accountancy, which regulates accounting firms in California. A board official has said it would open an investigation. If significant problems are found, penalties could range from fines to the loss of licenses. The controller also sent copies of the study to the Los Angeles County district attorney's office and state attorney general, which have been investigating the city.

MHM strongly disputed the controller's findings, suggesting that Bell officials deceived the firm. "Recent evidence disclosed by the controller's office shows that Mayer Hoffman was subjected to a massive scheme of collusion that reached through every layer of city government, to undermine the audit process and deceive the auditors," the firm said in its response.

Bill Hancock, president of the firm, said in a statement that his firm "adheres to the highest standards…. But in those 50 years we have never seen anything like the pervasive collusion of so many individuals acting in concert to deceive auditors, as happened at Bell."

Ask Sam Antar, it isn't that hard to fool auditors, so we believe Bill when he says there was some serious conspiring going down if this ended up this fucked up.

The controller's office is looking at ways to strengthen audits to prevent this sort of embarrassment in the future but really, how much can piss poor California do? To actually get useful information out of audits would require a complete overhaul of the industry as we know it, several indictments and the end of the Big 87654 and their precious fees. And that's just for starters.

Did Chiang not get the memo that audits are, in fact, bullshit? It's called coloring in the coloring books and checking boxes, that's it. See also: Accounting Is a Sewer

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


OldSouth said...

Off topic, with hopes of forgiveness:

A most Merry Christmas, JDA. You yourself are a real gift to the rest of us.

Hope 2011 treats you much better in the environs of D.C. than 2010 did in S.F.