The Department of Justice’s Office of Inspector General issued a report criticizing PricewaterhouseCoopers’ audit of Big Brothers Big Sisters of America and has referred to the matter to the American Institute of CPAs’ Professional Ethics Division.
The report, which the Inspector General issued Monday, concerns a quality control review of a PwC audit of Big Brothers Big Sisters for the fiscal year ended June 30, 2011. An earlier audit report by the Inspector General from June 2013 regarding over $23 million in grants awarded between 2009 and 2011 to Big Brothers Big Sisters by the DOJ found that the organization was in material noncompliance with the majority of grant requirements tested. As a result, the Inspector General questioned over $19 million in funding that the charity had received.
PwC had stated in a fiscal year 2011 audit that Big Brothers Big Sisters complied in all material respects with the laws, regulations and grant requirements, and PwC did not identify any grant-related deficiencies or material weaknesses.
However, the Inspector General found that in most instances the “audit documentation prepared by PwC was not sufficiently detailed to provide a clear understanding of the nature, timing, extent and results of audit procedures performed, the audit evidence obtained and its source, and the conclusions reached.”
The Inspector General also found that some of the audit documentation contained contradictory information. For example, PwC’s working papers indicated that Big Brothers Big Sisters of America did not have a formal timecard or time-monitoring system to track employee time, but nevertheless reached the conclusion that BBBSA had adequate supporting documentation for the payroll costs charged to its federal awards.
After bringing the deficiencies to PwC’s attention, PwC management determined that its March 12, 2012 audit report could not be relied upon and withdrew the original report from the Federal Audit Clearinghouse in July 2013 so additional audit work could be performed. A revised audit report was submitted in January of this year.
The DOJ Inspector General accepted the revised audit report, but pointed out the original audit report and documentation contained extensive deficiencies. Whereas the original report showed that federal expenditures totaled more than $13 million and contained unqualified audit opinions and no findings, the revised report showed total federal expenditures of $5.9 million and gave an adverse opinion on major program compliance and eight findings. Reuters called the report a “black eye” for PwC’s U.S. firm.
“When an auditor does not follow standards or provisions required in federal audits, that failure constitutes an act discreditable to the profession and is a violation of the Rule 501 of the American Institute of Certified Public Accountants’ (AICPA) Professional Standards,” said the Inspector General report, signed by regional audit manager and national single audit coordinator Carol S. Taraszka. “Consequently, as we discussed with PwC management, the seriousness of the deficiencies in PwC’s performance and review of audit work and the resulting weaknesses in the original audit report that we identified in the course of our initial QCR work compels us to refer this matter to the AICPA Professional Ethics Division.”
In response to the report, PwC pointed out that the Inspector General had accepted the audit report once it was revised. “We are pleased that the OIG accepted the firm's revised audit work relating to Big Brothers Big Sisters of America, consistent with its prior findings that did not identify any intentional misuse or misdirection of federal funds at BBBS,” said a statement emailed by spokesperson Caroline Nolan.
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