Madoff's Auditor: Opinions?

[Orchidflower]

Hopefully, someone on this board is or has been an auditor and is willing to give their opinion on Friehling, Madoff's auditor. Sloppy work? Or he just got caught in a bad situation? Anything?

Madoff accountant pleads guilty, says he's sorry - USATODAY.com

[ziggy29]

Enron. Arthur Andersen.

History does indeed repeat.

[crazy connie]

He signed off on work not done knowing that investors relied on his supposed work product. Greed no more no less.

[Bestwifeever]

It sounds like Madoff's auditor had to know what was going on.

But who knows why people let themselves get pulled into things like that. We had a mortgage many years ago from a very small bank that had mostly blue collar Polish and Italian customers. The president/CEO was a very hardworking man of the people who personally signed off on all the loans.

He went to jail supposedly because an old friend begged for him to make a fraudulent loan as a favor and then turned around and blackmailed him for more money, which he kept paying.

[WhoDaresWins]

Yeah, of course the auditor knew things weren't right. Whether he knew it was a Ponzi scheme only he can say, and he denies it. I read in the WSJ today that the auditor joined his father-in-law in the CPA practice. The Madoff account was active with the FIL first who likely(I'm speculating here) showed Sonny how things were to be done for this most lucrative and prominent client. But he should have known better. He was a CPA. He admits to filing falsified tax statements for Madoff and "others" as per the WSJ. I wonder if it ever crossed his mind that it was most unusual that their little one-man firm thirty miles from Manhattan was chosen to be the auditor for this billion dollar international concern. Probably not. I'm guessing that he couldn't believe his good luck, and that the in-laws and his wife would have had a fit if he killed the Golden Goose.

[Orchidflower]

I tend to agree with you, WhoDaresWins, but I'm not in that biz nor ever have been. However, I used to be a headhunter for Fortune 500 firms pulling these auditors from Big 8 years ago when I first lived in Chicago (now Big 5? Or something?).
Auditors are great to work with. Always well dressed and on time from those firms, plus, they were smart, so alot of fun to talk to.
And Arthur Andersen was the Waspy-est, most uptight, follow the rules firm of the Big 8, so it was a mind blower how they could have been so stupid as to involve themselves with the Enron scam. I was blown away myself to know they closed down a firm that had been in business for years...wow! is all I can say about it.
It do seem hard to swallow that these auditors didn't know totally what was going on. I mean REALLY hard. I, also, am sure they knew about it and--being such a feather in their dinky cap--just went along with what Madoff's scam. Who knows what was the exchange as now there is info that Madoff's firm was called the North Pole for all the cocaine there (plus, hookers and other party stuff). Everyone working there had to know it wasn't kosher. These people weren't stupid.
Bet the Feds are really putting the squeeze on Friehling who's looking at 114 years Federal time for info on the "others." I would just hate to be in his shoes.

[Orchidflower]

Gee, I forgot I worked at Arthur Andersen one summer as a secretary between my Jr. and Sr. year of college. My old boss was the next door neighbor of the President then in 1972, and he got the job for me.
All I remember (other than never having any work and my summer boss bringing me a box of candy) is how overworked the young auditors were there with such ridiculous work hours of like 60 a week. Little did I know that one day in the future I'd spend 16 years working that and more for myself...ahhhhh, how innocent I was once.

[HFWR]

There was an auditor?

[Ed_The_Gypsy]

May they both rot in hell.

[traineeinvestor]

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.

[mickeyd]

As part of the Madoff gang, he looked the other way on the way to the bank to cash his check. He, along with the rest of the gang, got caught when Bernie squealed to the cops. Bernie is in for life; the rest of the gang will follow shortly.

The SEC looks like a bunch of incompetent fools.

[ziggy29]

Quote:

Originally Posted by traineeinvestor 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)

This wouldn't have screened out Enron.

[Texas Proud]

As others have said here... there is NO way any auditor (CPA or not) could have missed the scam.... there was ZERO evidence of any stock as there was none... where were the holdings?

Now, he was supposed to also have an investment company that was legit... and maybe they were providing evidence of these holdings as a custodian... but all you have to do is get something from DTC to show how much that company has... then do the math...