Professional Services Monitor: Today

McGladrey & Pullen has been sued by the bankruptcy trustee for Sentinel Management Group, Frederick Grede, for $550 million, according to the Wall Street Journal.  Gede accuses McGladrey of “certifying false financial statements and creating some of the accounting entries that led to Sentinel’s financial misstatements.”

Mr. Grede, whom the court appointed last year to oversee Sentinel’s bankruptcy, said the firm’s “failure to properly fulfill its responsibilities” let Sentinel executives run the company for their own benefit.”"M&P’s failure to either ensure that Sentinel’s financial statements accurately reflected the facts or refuse to certify materially misstated financial statements, as well as its failure to report these violations in its audit report and to authorities, reflects a deliberate disregard of M&P’s obligations as an auditor,” he said.

Grede has also sued three former Sentinel executives and the Bank of New York.Thus far, McGladrey has not made comment on the suit.  Considering what BDO has faced in the ES Bankest case after deciding to go to trial,  one wonders whether McGladrey will seek a settlement.

Yesterday, Ernst & Young announced a new careers portal, EY Insight.

As part of Ernst & Young LLP’s ongoing focus to recruit a broad talent base of approximately 10,000 employees this year, the firm has launched EY Insight, a fully interactive careers web site experience that provides engaging, personalized tools for prospective employees. EY Insight can be viewed at www.ey.com/eyinsight/index.html.

The site itself is slickly designed, the epitome of Gen-Y targeting on the Web. One interesting feature, Picture Yourself, is a shopping-cart-like tool to assemble a matrix of academic experience and job interests into potential E&Y career paths.“EY 360″ repackages the tried and true “portrait of a young professional” profile and creates a Facebook style snapshot, including “confessions” and a sample daily timeline, complete with a video of a 7:00 AM surfing session before work.

In an 8K filed Tuesday, Broadcom announced its dismissal of Ernst & Young and engagement of KPMG. This is a nice win for KPMG, but the more interesting part of the event was one sentence within the filing:

The decision to change auditors was the result of a competitive process, conducted as part of the Company’s ongoing efforts to enhance its corporate governance practices, that was launched in conjunction with the rotation of the lead E&Y audit partner off the Company’s account pursuant to Rule 2-01(c)(6) of Regulation S-X.

That partner rotation rule, part of Sarbanes-Oxley, requires that the lead and concurring partners rotate off engagements every five years. With smaller audit firms and smaller clients, this has been a big deal. Since a small firm has only so many partners to go around, this often means the loss of a client after five years for the reason alone. Among larger firms and clients, however, we have not seen this mentioned in many, if any, auditor changes.

Broadcom had used Ernst & Young since its 1998 IPO, if not longer, meaning it could have been working with the same partner for 10 years. While we have no further information than this on the situation, that mention under these circumstances seems to bring to light the importance of personal relationships, even with a Big Four firm and a billion-dollar client. Through our Quarterly Competitive Summary, we interview hundreds of CFOs every year following auditor changes. Rising fees and independence concerns have been key reasons cited by CFOs for making an auditor change over the past three or four years. But other factors having to do with the relationship, such as previous experience with a firm, have been a constant through the nine years we have done this research. Furthermore, smaller companies say over and over again that they leave, or are left by, the Big Four in order to get more personal service at Crowe Chizek or Grant Thornton.

The Wall Street Journal features a front-page story this morning on corporate efforts to provide and supplement curricula in schools, including Deloitte.

In a recent class at Abraham Clark High School in Roselle, N.J., business teacher Barbara Govahn distributed glossy classroom materials that invited students to think about what they want to be when they grow up. Eighteen career paths were profiled, including a writer, a magician, a town mayor — and five employees from accounting giant Deloitte LLP.
“Consider a career you may never have imagined,” the book suggests. “Working as a professional auditor.”

While some will undoubtedly criticize a commercial influence in schools, I feel Deloitte’s program as described is necessary and beneficial for all parties. After all, the bulk of corporate presence in schools is more likely to be marketing and sales–vending machines and the like– then educational materials, even if from a particular corporate viewpoint. In Deloitte’s case, they are not pulling out the best and brightest prospects immediately, leaving mysteriously empty desks across Advanced Placement classrooms. Instead, these sort of programs just provide some awareness of the profession and careers in it.