America’s accounting watchdog is not exactly a paragon of effectiveness.
Set up in 2003 to oversee the audit profession after collusion led to the collapse of Enron and WorldCom, the Public Company Accounting Oversight Board (PCAOB) has issued just $6.5 million in fines in its 16-year history. That’s especially surprising since the board found that the Big 4 accounting firms bungled almost a third of the audits it has analyzed since 2009.
Now it seems that, on top of this historically weak oversight, the PCAOB is just plain working less.
The Wall Street Journal reports that the board conducted 27% fewer audit inspections this year, suffered an exodus of senior staff, is embroiled in infighting, and is caged in a “sense of fear,” according to a whistleblower letter reportedly written by several current and former board employees, which was seen by the WSJ. After receiving the letter, the Securities Exchange Commission (SEC), which oversees the oversight board, appointed former SEC chair Harvey Pitt to look into the body’s corporate governance, the WSJ reports.
With the task of ensuring that public companies’ accounts are in order, and alerting investors if they are not, auditors are a crucial tenet of a functioning capitalist society. The PCAOB was created to ensure that corporations are doing their jobs properly, and to avoid the kind of corporate catastrophes that can cost thousands their jobs, cost shareholders billions, and put unfair burdens on taxpayers.
The authors of the whistleblower letter pointed the finger at new chair William Duhnke, who pushed out several senior executives shortly after arriving, including the general counsel and the director of inspections, according to the WSJ. The regulator “is permeated by a sense of fear” due to the firings—some of which were “driven by retaliation,” the letter reportedly said.
The PCAOB has struggled with an image problem in recent years. In 2017, the SEC replaced the entire board after a board member leaked confidential inspection data to an accounting giant KPMG. Four people have received prison sentences over the scandal so far.
The PCAOB did not immediately respond to a request for comment.