How PricewaterhouseCoopers Learned the Importance of Whistleblowing, the Hard Way
July 6th, 2018 by Mike Bothwell
Whistleblowing can reveal tons of problems and mistakes, so it’s no wonder so many companies don’t like it.
Whistleblowing is a thankless activity. It involves calling attention to problems within an organization, with many of these problems consisting of illegal behavior. This results in the whistleblower creating many enemies. To make matters worse, it’s usually hard to find someone who will appreciate the whistleblowing.
In many instances, it’s the general public or society as a whole who benefits from the whistleblowing. So while serving as a whistleblower will help others, it’s hard for anyone else to recognize the sacrifice and work a whistleblower must provide. Despite all these challenges, blowing the whistle on improper behavior is still a good thing. A recent example involving PricewaterhouseCoopers demonstrates this.
What PricewaterhouseCoopers Does
PricewaterhouseCoopers (PwC) is a large, well-known company that provides professional services to business and organizations all over the world. It’s most famous for its auditing services, where its accountants and auditors review the financial books and procedures of other companies.
The Problem with Auditing
The auditing profession is a reputable and necessary one. Most companies don’t have the time and money to look over their own financial statements to ensure accuracy and compliance with relevant laws, rules and regulations. But most importantly, companies need an independent set of eyes to look things over. It’s hard for investors and outside officials to trust the financial statements of a company if the company itself prepares and reviews the information. After all, it’s in the company’s best interest to hide the flaws and exaggerate the positives.
That’s where companies like PwC come in. They provide their accounting and auditing expertise so it can assure others that a company’s “books” are truthful and in compliance with specific accounting standards. The problem is that PwC doesn’t always provide an honest and unbiased review of a company’s financial statements.
This is because PwC gets paid by the very company it audits. No company being auditing wants to receive a bad review! The last thing the Chief Financial Officer of a company wants to hear is that its accounting department is “cooking the books” or otherwise engaging in improper bookkeeping. Unfortunately, this happens more often than any company would like to admit.
Not only is this embarrassing, but it can result in large amounts of money to make reparations, or even lead to lost income. Imagine a defense contractor winning a multi-billion dollar contract with the United States government. Then its auditing company (such as PwC) discovers that the bid to win the contract was artificially low due to hiding research and development costs. This is a serious problem because it could jeopardize billions of dollars in revenue.
In a perfect world, the defense contractor would be happy the auditing company found the truth, admit its mistake to the federal government and take its chances. But what sometimes happens is that the defense contractor tries to hide the facts. How does it do this? By pressuring the auditing company.
How Do Clients Put Pressure on PwC?
Like other auditing companies, PwC charges a fee for the services it provides to its clients. But when these services reveal bad news that annoys, angers or upsets the client, there is pressure on PwC to ignore or sugarcoat the unpleasant information. There is this pressure because PwC wants repeat business.
It’s unlikely the client will refuse to pay for the audit that uncovers terrible information. But when the client needs another review, they’re probably going to want to find an auditing company that is willing to either look the other way or gloss over any problems it sees. The auditing industry is extremely competitive with a lot of money at stake. So it’s easy to understand why a company like PwC would want to provide dishonest audits. And thanks to a whistleblower, we now know that this actually happened.
The PwC Whistleblower
Mauro Botta (Mr. Botta) was an employee at PwC for many years. During his time there, he alleges that he found evidence PwC provided misleading bookkeeping and auditing services to its clients. At first, he was honest and brought attention to the problems with PwC’s clients. Mr. Botta claims that PwC responded in at least one instance by taking him off the project at the client’s request. Mr. Botta then went to the Securities and Exchange Commission (SEC) to blow the whistle on what happened to him and what went on at PwC. Soon after, PwC fired Mr. Botta and blacklisted him. Other accounting and auditing companies did the same.
In May 2018, Mr. Botta began a lawsuit against PwC. He alleges retaliation for blowing the whistle on the “fraudulent” and “deceptive” behavior at PwC. Mr. Botta relies on various state and federal laws, including the California Whistleblower Protection Act and Sarbanes-Oxley. Assuming Mr. Botta’s allegations are true, PwC is learning that it should not only do the right thing when auditing clients, but not retaliate against a whistleblower.
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