Lots of news to catch up on the Wells Fargo unauthorized account mess from when I was on vacation last week.
A few articles for your consideration:
- What, if anything, should have been disclosed about the investigation while it was underway?
- Disclosures likely in the next round of filings with SEC.
- Hints the fake account fiasco could extend into the small business division.
- Bank’s CEO resigns.
- The Congress and CFPB were late to the party.
- California AG opens investigation of possible identity theft.
9/29 – Michael Rapoport at Wall Street Journal – To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – Wells Fargo did not disclose the existence of the investigation and settlement talks regarding the fake account scandal.
Interesting question for companies and auditors arises: should it have been disclosed?
Article provides a good non-technical explanation of materiality:
Generally speaking, materiality depends on whether a reasonable investor would consider the information important enough to affect the investor’s decision to buy a company’s securities.
The following article provides a superb update on recent developments in the peer review program. The article is graciously provided by the California Society of CPAs and the information described here applies in all jurisdictions across the U.S.
Because the entire article is quoted verbatim without any additional comments from me, none of the article will be placed in quotation marks.
Originally published by CalCPA (www.calcpa.org) in the October issue of California CPA magazine.
Used with written permission of the California Society of CPAs.
Be Prepared – A Comprehensive Peer Review Update
By Linda McCrone
Peer review is a successful program that helps firms improve their quality control systems and elevate the quality of accounting and auditing engagements. The AICPA contributed the software program that tracks peer reviews and the staff that manages the program. AICPA member volunteers contribute their time to oversee the program, keep the peer review program forms current and make certain that the peer review standards remain relevant. But like any successful program, peer review must continue to evolve to keep up with events.
SSARS #22 addresses Compilation of Pro Forma Financial Information. This document rolls SSARS #14 into the clarified format. This is the last section of the old SSARS to be rewritten as a clarified document.
You can find the document here.
It will be effective for compilations of pro forma info dated on or after May 1, 2017.
Charles Hall has a superb recap of the document at his blog, CPA-Scribo: Are You Up to Speed on the New Pro Forma Information Standards? If you want to get up to speed really fast, check out his article.
The California Society of CPAs has a superb article on the Peer Review program in their October 2016 newsletter: Be Prepared – A Comprehensive Peer Review Update.
Here is the link again: http://californiacpa.calcpa.org/?issueID=65&pageID=15
I will check to see if I can get permission to reprint the article.
Update: CalCPA graciously gave me permission to reprint the article. You may find it here.
One thing I’ve learned while being in leadership at my church is that a conflict that appears simple to outsiders is usually far more complicated and messy and ugly than it appears, with blame for a conflict sometimes belonging to the party that appears innocent.
I’m slowly catching on that maybe that idea sometimes applies to massive financial fiascos. (Yeah, yeah, I know. I usually catch on really slow.)
Who is at fault?
Back in January 2008 a trader, Jérôme Kerviel, engaged in €50B of unauthorized trades for Société Générale and hid his trades. That’s fifty billion euros. He admits to making fake entries to hide his admittedly unauthorized trades.
Unwinding the trades cost the bank €4.9B.
I recall at the time that the story line was he was a rogue, a scoundrel, etc., doing all this by himself, etc., single handedly pulling off a huge scam, etc, cleverly wending his way between those tight internal controls, etc.
Previously, Mr. Kerviel was tried and convicted on criminal charges. His initial sentence was five years, which was reduced to two years (I think it was 2 but maybe was 3).
He served five months in prison, according to the following article.
Well, multiple parts of the French judicial system are saying that allocating the blame is a bit more complicated.
Wells Fargo got some more visibility this week for violating federal law on repossessing property from servicemembers on active duty. The CEO got another round of public thrashing, this time from the House of Representatives. The CEO and former head of community-banking forfeited a bunch of future compensation.
9/29 – Bloomberg – Wells Fargo Troubles Mount With Penalty for Soldiers’ Loans – Federal law has been in place since about 1940 that provides protection to servicemembers from collection efforts. The law currently says lenders have to get a court order before they repossess property from anyone who is on active duty. The law was rewritten in 2003 and has been updated since then.
The protections for servicemembers have only been around for, oh, about 75 years. Need I point out that is plenty of time for the compliance staff to catch on to the pertinent laws?
The Pentagon has a list of all active duty service members which lenders may access if they wish.
Two separate enforcement actions within two years against Wells Fargo for violations of that law suggests the bank may just have a systemic compliance issue.
The newest issue involves 413 alleged violations of the law. The bank agreed to pay $4 million for unlawful repossessions during a seven-year run. That’s an average restitution of about $10,000 each. In addition the OCC ordered the bank to pay a $20M fine for a decade’s worth of violations.
The Wells Fargo CEO got a good whuppin’ yesterday. The Senators each took their turn striving for the lead quote in the evening news.
As usual, the comments on Twitter are entertaining. Deep thoughts range from wanting to throw all the bankers in jail to one person lauding one senator for having personally discovered and exposed the fake account fiasco. Really. One of the senators found this mess.
If your knowledge of Cold War history extends to knowing what a show trial is, ponder the visuals and theatrics of the hearing. As I browsed through my twitter feed looking at the linked photos, show trial is what came to mind.
9/20 – Wall Street Journal – Whipping Wells Fargo / The bank blundered, and the politicians will make it pay – Editorial provides valuable perspective. Opening paragraph brings together multiple ideas, which I’ll quote under fair use: