Attestation Update – A&A for CPAs

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Posts Tagged ‘bank fiascos

Efforts continuing to clean up fake account fiasco at Wells Fargo

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October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog.

October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

There haven’t been a lot of high-profile articles about the Wells Fargo fake account fiasco recently. I’ve noticed a number of articles though, which suggest there is ongoing activity addressing the intentional, systemic failure. This disaster will not be cleared up soon.

  • How does Wells fix the indirect harm it caused?
  • New compensation plan removes cross-selling as a benchmark
  • Possible MD&A enforcement action?
  • Branches received 24 hour notice of internal inspections
  • Bank may eliminate 2016 bonuses for senior staff

12/27/16 – Wall Street Journal – Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case at a Time – Making customers whole will be easy if the customer was only charged a few dollars a month for a while. Still simple to resolve if there were monthly charges and a bunch of overdraft fees because money was taken out of an account unknowingly which resulted in some bounced checks.

What do you do when the unpaid fees on a credit card flowed into negative information on a credit report which resulted in a customer being denied funding for a home loan somewhere else? That’s what happened to one interviewed customer.

Destroying someone’s credit is a tough thing to make right.

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Written by Jim Ulvog

February 13, 2017, 9:14 am at 9:14 am

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Minor updates on Wells Fargo fiasco

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Concord stage coach at Wells Fargo museum in San Diego. Photo by James Ulvog.

Concord stage coach at Wells Fargo museum in San Diego. Photo by James Ulvog.

Not a lot of news in the last few days about the Wells Fargo new account fiasco, but there are a few pieces of information.

12/12 – Reuters – Prudential stops distribution of policies sold through Wells Fargo – With the increased attention on the low-cost life insurance product from Prudential, called MyTerm, which was sold by Wells Fargo, the insurance company suspended sales of the product through the bank.

Article says that separately Wells Fargo suspended sales of renters insurance that goes through a different insurance company.

The California Insurance Commission has opened an investigation of the product sales.

Article says the California regulators says the New Jersey insurance regulator has also opened an investigation. Reporter cannot get confirmation from the New Jersey regulator.

12/16 – Francine McKenna at MarketWatch – Prudential allegations complicate Wells Fargo’s work with new partnersRead the rest of this entry »

Written by Jim Ulvog

December 16, 2016, 9:37 am at 9:37 am

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More regulatory punishment for Wells Fargo. Another possible dimension of the fake account fiasco.

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Wells Fargo 'mud wagon' at Seely Stable museum in San Diego' Old Town state park. Photo by James Ulvog.

Wells Fargo ‘mud wagon’ at Seely Stable museum in San Diego’s Old Town state park. Photo by James Ulvog.

More punishment on the way from the OCC.

Also, accusations emerged over the weekend that staff of Wells Fargo may have been opening insurance products from Prudential without customer permission. Keep in mind those are only accusations by terminated staff. If substantiated, this could be a new layer of the fake account scandal.

I previously mentioned OCC imposing additional consequences from the fake account scandal. Background for the next article:

  • 11/18 – Wall Street Journal – Banking Regulator Imposes New Restrictions on Wells Fargo – Apparently the consent degree signed by Wells had some harsh language in it which was immediately waived by the OCC. On Friday the OCC unilateally revoked their waiver. As of now, Wells Fargo must get OCC permission before it hires or fires senior executives, before it make changes to the board of directors, and before making any “golden parachute” severance payments to executives. Approval will be required to changes in the bank’s business plans.

Update on that action:  11/20 – Wall Street Journal – Wells Fargo Grapples With OCC Move Internal communication from the new CEO indicates the restrictions from OCC are not due to new developments. Sources for the article indicate uncertainty for the reason. Could be a bureaucratic reaction to criticism the OCC was slow to catch on to the issue or that the agency went too lightly on the bank.

Additional punishment…

12/9 – Wall Street Journal – Wells Fargo Likely Face Regulator Downgrade, harming Its Prospects – OCC may be downgrading Wells’ rating under the Community Reinvestment Act. This would be another round of extra-judicial punishment for the fake account fiasco.

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Written by Jim Ulvog

December 11, 2016, 7:33 am at 7:33 am

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Update on Panama Papers – 11/22

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Either there hasn’t been much going in the money laundering news or I’ve not paid enough attention. On the other hand, governmental investigations are run behind the scenes. Perhaps the regulators are working out of sight.

Here are a few articles I’ve noticed in the last few months.

7/28 – U.S. Prosecutors Probe ‘Panama Papers’ Law Firm’s Employees – Leaks say Department of Justice has opened an investigation of various staff in the D.C. office of Mossack Fonseca.

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Written by Jim Ulvog

November 22, 2016, 7:00 am at 7:00 am

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A few more updates on the ongoing banking fiascos: Wells Fargo and J.P. Morgan

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October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog.

October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

Odd development yesterday in the fake account fiasco at Wells Fargo. The OCC decided to get involved in lots of internal decisions at the bank.

The side fiasco of banks hiring relatives of clients in order to gain future business is off point from the banking fiascos I’ve been focused on. However, one settlement has caught my eye. Two articles describe the mess at J.P. Morgan.

11/18 – Wall Street Journal – Banking Regulator Imposes New Restrictions on Wells Fargo – Apparently the consent degree signed by Wells had some harsh language in it which was immediately waived by the OCC. On Friday the OCC unilaterally revoked their waiver.

As of now, Wells Fargo must get OCC permission before it hires or fires senior executives, before it make changes to the board of directors, and before making any “golden parachute” severance payments to executives. Advanced approval will be required to any changes in the bank’s business plans.

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Written by Jim Ulvog

November 19, 2016, 9:57 am at 9:57 am

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More news on the Wells Fargo fake account fiasco

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Concord stage coach at Wells Fargo museum in San Diego. Painting at top is of Old Town San Diego in its prime time. Photo by James Ulvog.

Concord stage coach at Wells Fargo museum in San Diego. Painting at top is of Old Town San Diego in its prime time. San Diego harbor is visible on left with Point Loma at the top. Photo by James Ulvog.

A few more articles on the fake account mess at the bank:

  • Wells Fargo is trying to get back on track.
  • Other banks are getting inquiries from the OCC about incentives to open accounts.
  • SEC is looking at possibility of missing disclosures.

On October 24 the bank ran a full-page color ad in the Wall Street Journal on the back of the A section. Article ran again a few days later. I’ll guess that is a rather expensive page anyway, especially for the whole page, even more so for a very pretty color photo. Nice shot of a Concord stage on the open prairies, by the way. Cool photo!

Several comments from the ad, which I will quote under fair use, which in any event I’m sure Wells Fargo is perfectly fine with me quoting.

Putting your interest first: We have eliminated product sales goals for our Retail Banking team members who serve customers in our bank branches and call centers. This means that their focus will be a meeting your financial needs, not meeting sales goals.

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Written by Jim Ulvog

November 3, 2016, 8:53 am at 8:53 am

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In relation to the revenue Wells Fargo generates, the fees from fake accounts were trivial

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October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog.

October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

Let’s take a look at the income generated by Wells Fargo from the dummy accounts their staff opened in relation to the revenue the bank generates. Let’s even consider the fine in relation to income over the four years the schemes were running. I have not spared criticism of the bank previously. But let’s look at this mess from another perspective.

Here’s the bottom line – Finding the fake account fiasco means finding this:

Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

When hidden in this:

Image courtesy of Adobe Stock.

Image of 16 one hundred dollar bills courtesy of Adobe Stock.

That’s one penny of false revenue for every one thousand six hundred dollars of legitimate revenue.

To start the discussion, consider Michael Rapoport’s article at the Wall Street Journal on November 1: Wells Fargo: Where Was the Auditor – Several of the Senators sent KPMG a letter last week suggesting the audit should have caught the fake account fiasco.

Article explains that audits aren’t designed (and aren’t capable of) finding frauds that don’t have a material impact on the financial statements.

Article makes the very important point that an audit designed to catch frauds as small as the fake account mess would have a cost so high as to make the audit completely unaffordable.

So let’s take a look at materiality in relation to the massive size of Wells Fargo.

Amounts for materiality discussion

Let’s look at some numbers for perspective.

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Written by Jim Ulvog

November 1, 2016, 10:51 am at 10:51 am

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