Deloitte & Touche LLP has reached settlements related to the 2000 audit of Adelphia and the 1998 audit of Just For Feet. Each of these cases involves a consent decree, signed by Deloitte & Touche LLP, in which it neither admits nor denies wrongdoing. These two settlements are the first enforcement cases for Deloitte & Touche LLP since Deloitte & Touche was formed by combination in 1989. Deloitte & Touche LLP believes that the settlements are in the best interest of its people, clients and the organization.
As a condition of the Adelphia settlement, Deloitte & Touche LLP will pay a $25 million penalty, plus a $25 million contribution to a fund to compensate Adelphia shareholders and debt holders. Deloitte & Touche LLP also has agreed on steps for enhancing audit quality for its clients. As part of the settlement on Just For Feet, there will be a payment of $375,000 to the U.S. Treasury. Neither of the settlements restricts Deloitte & Touche LLP’s ability to provide services to new or existing clients.
In both the Adelphia and Just For Feet cases, the primary basis of the SEC’s claim is that the audits were deficient and failed to uncover fraud committed by the companies and certain members of their management in the face of identified risks.
“Deloitte & Touche LLP shares with the SEC a mutual interest in strengthening investor confidence in the capital markets through the ongoing enhancement of higher quality audits. A key component of this entails continuously developing and applying audit procedures to help in the timely detection of fraud,” said James Quigley, CEO, Deloitte & Touche USA LLP.
Quigley continued, “These cases raise a larger issue facing the auditing profession. Among our most significant challenges is the early detection of fraud, particularly when the client, its management and others collude specifically to deceive a company’s external auditors. Deloitte & Touche LLP has implemented, and will continue to implement, a number of additional improvements in its policies and procedures for auditing clients in its risk management program and to aid in uncovering fraudulent activity in a more timely manner.”
Finally, Quigley stated, “In our normal course of business, Deloitte & Touche LLP is constantly improving audit processes based on new pronouncements and standards, its internal inspection programs, and PCAOB inspections and will continue to do so in the future. Coming out of the settlement, Deloitte & Touche LLP will implement several changes that should help to improve the performance of future audit engagements. These include improved audit procedures for clients in the risk management program; more tailored audit procedures in response to identified risks and improved documentation of the conclusions regarding issues raised; the completion of specialized training for all audit professionals in detecting potential fraud; and deploying forensic specialists to assist audit teams in the planning stages of audits for all clients in the risk management program.”
In the case of Adelphia, certain executives were found guilty of fraud, while in the case of Just For Feet, certain executives and third party vendor employees agreed to plead guilty to fraud charges.