It’s a bit quiet on the news front today, no doubt partially due to President’s Day. Everyone’s out buying mattresses.
Fun President’s Day fact: although the third Monday in February is meant to recognize the birthdays of both first president George Washington and original hipster Abraham Lincoln, only Washington’s birthday — February 22 — is officially recognized in federal law (5 U.S. Code § 6103).
Now that we’ve sufficiently padded out the lack of news, let’s get to what little there is.
The Times ran this story on Sunday: ‘Under-employed’ staff in the firing line at the Big Four.
Underemployed staff at the Big Four auditors risk losing their jobs as firms step up their scrutiny of employee workloads in a downturn.
EY and Deloitte are among firms that are letting inactive employees go at performance reviews outside of already announced job cuts, according to sources.
These companies are looking more carefully at employee “utilisation rates” — a measure of the time staff spend working for clients — to appraise their workloads.
OK so nothing new there. It’s actually pretty funny how much they had to break this down for the Times audience. But they did get both Deloitte and EY on record to discuss utilization:
Utilisation rates are calculated by the work schedules and time sheets of staff. If staff are working with clients they are marked as being “utilised”, otherwise they will find themselves “on the bench”, during which time they may work on internal programmes.
EY said: “While utilisation can be an indicator of an individual’s wider performance, it is never considered in isolation.”
Deloitte said: “The majority of our people go through performance improvement plans successfully, receiving additional training and support as they grow and develop. Performance reviews are not aimed at reducing headcount.”
It’s believed Deloitte US has been engaging in sneaky death-by-PIP layoffs since last year.
And in related news I suppose, Deloitte UK is changing up its deals business in the name of profitability.
Big Four consulting firm Deloitte is scaling back its UK deals business to focus on higher value transactions after a review of its profitability, in a strategic shift away from work it has done for decades.
Deloitte will shrink its regional deals advisory practice, which often works on smaller transactions, according to several people familiar with the changes. It is also retreating from acting as lead adviser on financial services and intellectual property deals.
All of the Big Four — Deloitte, EY, KPMG and PwC — face challenges in their regional M&A advisory businesses. Profit margins are lower than on big deals and the wider market has been very quiet.
Deloitte said: “We are considering restructuring parts of our advisory corporate finance business. This is in order to concentrate on larger, sector-focused M&A activity. As a consequence, we are proposing to close some parts of that business.”
Good for you, sir.
We knew this was coming. PwC is gonna get sued over Evergrande:
Evergrande’s liquidators are preparing for a potential lawsuit against PwC, which audited the now-collapsed Chinese property group for more than a decade, in a move that could lead to the Big Four accounting firm facing a high-profile negligence claim.
Eddie Middleton and Tiffany Wong, the Alvarez & Marsal restructuring specialists appointed as liquidators of Evergrande’s Hong Kong-listed holding company last month, have spoken to at least two law firms about the prospect of bringing a claim against the audit firm, according to three people with knowledge of the conversations.
The liquidators were “taking steps to protect [their ability to bring] legal claims against auditors”, one of the people said.
A bit of backstory if you aren’t familiar with the saga of Evergrande, it’s been a couple years:
Last year as China Evergrande Group’s stock and bond prices seesawed, it offered deep discounts to keep sales growing during the pandemic and the government effectively said it had borrowed too much.
Yet the property developer’s auditor gave it a clean bill of health in an annual report issued this spring.
Now, Evergrande is teetering on the edge of financial collapse, weighed down by an $88.5 billion debt burden and total liabilities in excess of $300 billion. The company has hired financial advisers, pointing to a likely restructuring, and Beijing is telling local officials to prepare for its potential downfall.When Evergrande’s auditor, PricewaterhouseCoopers in Hong Kong, signed off on the company’s 2020 financial statements, it didn’t include a so-called going concern warning. These red flags from an auditor show that it has doubts about the company’s ability to stay afloat for at least 12 months.
“China Evergrande Never Got Auditor Warning Despite Big Debt Load,” Wall Street Journal September 24, 2021
Closer to home, Deloitte is allegedly moving offices in Milwaukee. The article is behind an unclimbable paywall so all we know is they’ll be leaving 545 E. Wells St. and moving into the U.S. Bank Center “according to commercial real estate sources.” Lakefront view woo! Milwaukee Deloitters may soon be able to brag to Tinder matches that they work out of the tallest building between Chicago and Minneapolis.
Side note: you ever notice how every firm has a bunch of one star reviews on its local Google listing? I’m serious, check for yourself.
Are these disgruntled former employees? Civilians who sauntered up to the office on April 10th expecting to get their taxes done? It’s very curious.
Here’s some more excellent reporting from Australian Financial Review on yet more PwC foolery. A construction and real estate company headquartered in Barangaroo (man, that’s a fun word) called Lendlease has disclosed a potential tax liability with PwC at the middle of the bad advice.
The property company’s disclosure marks a continuing change of tune from Lendlease, which in 2020 originally insisted there was “no dispute or negotiations” with the Australian Taxation Office, and in 2021 dismissed as a “speculative story” when The Australian Financial Review again reported on the issue.
Lendlease on Monday in its half-year financial report listed the ATO audit of its retirement village transactions from its 2018 tax return as a “contingent liability”.
It is understood the ATO estimates the liability at $260 million, but one source suggested the total liability might be as large as $400 million after interest and penalties.
Its former external tax adviser turned whistleblower, Anthony Watson, estimates the liability itself is close to $300 million from the alleged “double dip” tax scheme.
Watson is happy to say “I told you so” now that everything is blowing up.
Mr Watson said on Monday that Lendlease sacked him after he advised against the scheme and it hired PwC, which cleared Lendlease’s tax deductions.
“I said it wouldn’t work and it would be evasion,” Mr Watson said.
“So Lendlease flicked me, and obtained advice from PwC on every retirement village acquisition from 1 July 2012 till the acquisition window closed on 30 June 2015.
“PwC said the scheme worked. I said it was straight fraud and intentional disregard of the law.”
And then there’s this. Post-scandal PwC Australia CEO Kevin Burrowes appeared before the Senate for even more grilling earlier this month and was asked how much he makes.
“Currently $2.4 million,” he responded without skipping a beat, for which he was thanked for his candour.
The figure – substantially less than the $4.6 million paid to ex-chief Tom Seymour – raised eyebrows throughout the firm. And no wonder: it isn’t right.
Burrowes’ pay is closer to $2.8 million. PwC’s spokesman insists the firm contacted the Senate to correct the record long before we asked, which we hope is true.
Oof.
Financial Planning wrote about the recent private equity report from Cherry Bekaert. The article talks about the recent trend of PE investments in accounting firms and potential risks should the economy take a turn for the worse. Two notable quotes:
“Private equity’s entrance into the professional services sector, specifically in the areas of wealth management, CPA and consulting organizations, is quickly changing the dynamics of the industry,” Scott Moss, a Cherry Bekaert partner and the leader of the firm’s private equity services industry practice, said in an email interview. “For 135 years, the CPA industry, for example, has remained relatively unchanged in terms of its business model, with steady but not necessarily transformational growth. However, what we have seen over the last two to three years can only be described as revolutionary.”
“Some market participants worry that investors in private credit — many of whom are new to the business of lending to small and mid-size firms — may refuse to roll over loans in an economic downturn, leaving highly leveraged, higher-risk firms that have borrowed from private credit funds vulnerable and unable to refinance their debt,” Moss said. “Affected businesses may reduce investment and employment and, in some circumstances, may default on their debt, creating direct losses to lenders and other financial market participants. If these losses are significant, this could cause an excessive tightening in risk appetite, disrupting the functioning of some markets and tightening credit conditions in the overall economy.”
“Private equity ‘revolution’ brings risks to wealth and accounting,” Financial Planning February 19, 2024
IRS CI “crime-fighting boss” Jim Lee is retiring:
Internal Revenue Service Criminal Investigation (CI) announced Friday that Chief Jim Lee will retire from federal service, effective April 6.
Lee has led CI since October 2020. During this time, he has overseen a staff of more than 3,200 CI employees, including 2,200 special agents, who have investigated thousands of financial crimes involving tax violations, money laundering, public corruption, cybercrime, identity theft, narcotics trafficking, human trafficking and terrorism financing. In addition to their world-renowned financial investigative responsibilities, approximately 140 special agents are members of a rapid response force providing support and security to local and federal first responders during national disasters and national emergencies.
“It has been the honor of my career to serve as the chief of CI and represent the 3,000-plus employees within the division. I have been fortunate to be surrounded by talented men and women across every discipline of the organization as we have unraveled some of the most complex financial crimes this world has ever seen. I will miss the job, my colleagues and the challenges we faced together,” said Lee.
On the topic of human trafficking — what a segue, huh? — a 78-year-old accountant from Haverhill, Massachusetts was arrested Friday after an investigation into an overdose death at his home:
Haverhill tax accountant John Caruso, who was previously charged with selling drugs is facing new charges including possession and distribution of drugs as well as trafficking persons for sexual servitude and maintaining a house of prostitution.
[His lawyer] that Caruso be allowed to continue working as he has hundreds of clients he does taxes for, has three daughters in the area, and that at this point the charges are nothing more than “allegations.”
Look, y’all, there’s a shortage OK. Think of the clients!
Alright, that’s about the best we’re going to find today. Be good, take care of yourself, and be sure to touch some nice grass this week alright?