Beware of defensive auditing

Greetings from Albany, New York where I now know the answer to the following question: Can ten degrees feel like a heat wave at 7 a.m.? Yes, it can.

Here is another question for you: Can a recent victory by the FDIC actually make things more expensive and difficult for not only banks but credit unions? To me the answer is yes.

Colonial Bank was victimized by a major fraud between 2002 and 2009 in which some of its key employees conspired with its major customer to allow it to overdraw the bank’s line of credit and then cover up this fact. By the time the fraud was discovered, $2 Billion had been lost. During much of this time the accounting firms PricewaterhouseCoopers LLP and Crowe Horwath LLP were responsible for auditing the bank. The FDIC brought a lawsuit in 2012claiming that but for their accounting negligence, the fraud would have been discovered sooner. Among the arguments advanced by the accounting firms in defending themselves was that the bank and the FDIC were effectively trying to get them money to pay for actions committed by the bank’s own employees. Late last week, the Court ruled that the bank could not win a lawsuit against the accountants but the FDIC could. This is a big deal and will presumably be appealed.


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