Arm's Length vs. Hand in Pocket
Wednesday, March 29, 2006
"Enron was not the first company to compromise the work of it's auditor. Before anyone had heard of Enron, Just For Feet, a sorry-a##, Super-Bowl-ad-running shoe store chain, went from a market cap of $700 Million to zero in three years with Deloitte & Touche's accountants on watch. Deloitte's consulting arm hit the company up for business to fix its internal control problems.
"Because the auditors and consultants are typically partners, the accountants benefit when the advisors get work. And not all that 'independent' of an independent auditor."
At last year's Annual Meeting, I questioned Mr. Wagoner as to why we have retained the same audit company for over 70 years. This is the same audit company we had when one of our franchisees, Mr. McNamara burned us for over $400 Million through false invoicing of non-existent vehicles, supposedly sent to the mid-east by his dealership. Mr. Lovejoy, head of GMAC at the time, was moved laterally to GMSPO, and to my knowledge, no one was held accountable.
"Most of the time auditors simply miss fraud. But sometimes the auditors have a motive to help the fraud along. The other services provided by the big accounting firms often put them into a conflict of interest.
"The larger the company, the larger the percentage of fees paid for services other than actual audits."
As auditors for Parmalat and Adelphia, Deloitte was guilty of a dereliction of duty and failed to properly protect the shareholders from fraud.
"Parmalat discloses an account in the Cayman Islands supposedly worth nearly $5 Billion is fake"
New York Times
My suggestion at the Annual Meeting was to "rotate the audit company every three years". Although this would not serve as a cure all to the issue of discovering and correcting fraud and corruption at General Motors, it is a logical first step and would at least provide the appearance of an arm's length relationship.
Not surprisingly, Mr. Wagoner replied, "thank you Mr. Dollinger" and did nothing.
Coming soon: Resignation vs. Indictment