The Big Switcheroo At Nature’s Sunshine

Sunlight is the best disinfectant.
– Justice Louis Brandeis

Thanks to Dan Swanson, Compliance Week columnist and inveterate emailer, a prince who provides much useful information to those who are on his mailing list, for this story of KPMG, Deloitte and Nature’s Sunshine.

The story presents a classic case of one auditor, in this case KPMG, identifying issues at a client, trying to get the client to do the right thing and failing. But in classic Big 4 form, another firm is ready to step in and ignore all that made the company too risky for their predecessor to stick around.

As I’ve discussed in a prior post, there really isn’t a problem finding another auditor when the situation gets hot, if the company’s business is lucrative enough. Sometimes it just takes a while…But, in fact, it’s usually hard to get the existing auditor to give it up, no matter how risky and contentious the situation becomes.

KPMG has now shown me for the second time that they’re willing to call a spade a spade. And I am a little surprised that Deloitte stepped into this pile of horse manure. (Organic pun intended.) They have recently resigned from two high profile clients, Children’s Place and Radian, due to the clients’ obstinacy and risk profile.

Update Monday October 15:
PwC has taken on Radian as a client and Deloitte is now the third auditor in as many years at H&R Block.

But I guess it’s all about the portfolio. Like their private equity cousins, they work in mysterious ways, with only the man behind the curtain knowing how risky the portfolio really is.

Ethisphere asks some very interesting questions. And given the readership of this blog, they should not have to wait much longer for either major media or the regulators to look a little more deeply into the behavior of the firms, both good and bad, on this one.

QUESTIONS REMAIN
What makes the Nature’s Sunshine case so interesting is that it is “off the radar” of the national financial media.

Yet, this simple fact is why it is so important. How do the Big Four accounting firms, the SEC and DOJ act when it is business fraud in a microcosm, as opposed to being covered in the national spotlight on CNBC or in the Wall Street Journal?

Here are some elements worth examining:

Do KMPG and Deloitte & Touche have such different standards for companies that they would accept as clients, as might appear in this case?

Will the DOJ follow through on this case or abandon it to focus on bigger fish?

Why did the CFO, who was with the company for nearly 25 years, suddenly resign during the KPMG investigation, with no explanation to the SEC or investors?

And finally, many boards fire CEOs for transgressions far less than what allegedly occurred here. What is it about this case’s facts, or the disposition of Nature’s Sunshine’s directors, which make them so willing to stand by their man, Faggioli?

The answers to these questions may come out of the shadows as the shareholder plaintiff’s case winds through the courts. Shining a light on the dealings of Nature’s Sunshine may have only just begun.