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As a director of a private company and a partner of a partnership which are each subject to statutory audit, I have familiarity with being on the receiving end of an audit.
One of the most basic things which auditors do is obtain third party evidence to support internal accounting entries (e.g bank statements) - and they get it directly from the third parties. This is the same whether the auditor is a two partner firm (which I use because it is cheap and the only people who care are myself, the tax collectors and secured creditors) or a big four firm (which costs a lot more but is necessary to give outsiders the necessary comfort level).
Based on those experiences and the publically available information it is simply not credible for Madoff's auditors to assert both diligence to the required standard and honesty. I fail to see how records of transactions from third party brokers, bank statements at the like would have failed to set off the alarm bells.
Whether they were paid not to do a proper audit job or were paid to assist in covering up the fraud or faked their qualifications to act as auditors remains an open question. I haven't seen their defence (if they have one), so I'll be charitable and leave open the possibility of an insanity plea. It would be very difficult to convince me that all Madoff's auditors have done is set a new standard in professional negligence.
As an aside, I no longer invest in either funds or individual companies which are not audited by a major audit firm (big four or second tier) and I actually read the full text of the audit report in the last annual report before investing.
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Perhaps a man really dies when his brain stops, when his mind loses the power to take in a new idea - George Orwell
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