Deloitte And Flanagan – A Culture of Non-Compliance?

Late, late, Thursday night, October 30th, I received two text messages from a known source:

“We @ Deloitte got a vmail today warning us that a Chicago partner is under SEC investigation for insider trading. Deloitte is suing him.”

“We were told not to talk to the media. I should have said ex-Partner because he resigned suddenly in Sept. Tom Flanagan.”

I didn’t see the messages until Friday morning, Halloween. I immediately Googled the name and looked for SEC or other info on the case.

I Twittered what I found out.

Bruce Carton over at Securities Docket picked up my Twitters and reported it on his blog, on the 31st and with a copy of the complaint on November 4th.

And then yesterday, Bruce and I finally saw a report in an online publication that’s a little more widely distributed than either of our blogs, The Huffington Post.  Ryan Blitstein, based in Chicago, told me he had heard about the case from an industry source.  He, like Bruce and I, could not believe that no one else had picked up the story.
Ryan did some digging and saw what I had seen.  This Flanagan guy was no “bean counter.”  He was a big muckety-muck in Deloitte, in Chicago, regionally, and nationally, and a Kellogg MBA. Ryan obtained a statement from Deloitte’s PR Chief, Deb Harrington, also. 
Now, this isn’t some junior accountant who violated minor rules. Flanagan was a major player at Deloitte’s Chicago office, and the subject of a fawning Q&A in the Tribune last spring. The former Army infantryman currently serves on the board of the Boys & Girls Clubs of America and is ex-chairman of its Midwest region. (A Boys & Girls Clubs spokeswoman said Flanagan voluntarily resigned on October 31, a day after the organization became aware of the allegations.) He received Deloitte’s Community Impact Award in 2003, according to a Google cache of a page from the firm’s Web site (removed sometime during the past few weeks).

I‘ll let Ryan and others dig into the motivations, the Elliott Spitzer type tragic character flaw, that would drive a guy like this to supposedly commit a transgression like this.  These are no infractions.  He could not be ignorant of policy.  Deloitte portrays the acts as egregious, willful violations of the most basic rules that anyone, including non-accountants, who chooses to work for the audit firms has to follow.  The rules are onerous, but thousands agree to abide by them in exchange for the privilege of working for the firms and, in doing so, do their small part in upholding the Independence and objectivity of the external audit process.

Until someone flouts the rules.  This is not the first time this has happened recently and it won’t be the last.  Bruce Carton at Securities is working on a survey of cases in the Big 4.  You see, these cases get the hush-hush treatment most of the time.  This one sat stewing, until Deloitte had no choice but to alert their staff. Pressure was brought to bear by the SEC investigation and probably by their clients, who were most likely complaining of calls from the SEC regarding Deloitte and threatening to fire them as their auditors.
I’m sure that killed Deloitte.  But just like when one of their clients is made aware of an SEC investigation, Deloitte has a legal obligation to preserve documents and such and to make sure no one in the firm blabs about something they shouldn’t to the press or otherwise.

Based on the complaint, it seems Mr. Flanagan has been a prickly, incorrigible sort with regard to this issue.

3. Compounding his wrongdoing, Flanagan repeatedly lied about his clandestine activities in annual written certifications, going so far as to conceal the existence of a number of his brokerage accounts to avoid detection of his improper conduct…Flanagan still has not disclosed to Deloitte all the relevant details of his trading activities in violation of his obligations to the Partnership.

The complaint goes on to describe the process by which partners, and I am assuming others in the firm, certify their compliance with Deloitte’s policies on independence and avoidance of conflict of interest.  These policies are required by SEC rules, and now PCAOB rules, that have been in existence for a long time.  The PCAOB recently updated and codified these rules when they took responsibility for regulating the audit firms under SarbanesOxley.
I see a problem with what I’ve read.
Why didn’t Deloitte see this issue earlier?
It seems, based on the complaint, that they were not aware until, presumably, the SEC started asking them and their clients a lot of questions.
I think they were aware of this guy’s rule-breaking.  In my experience, when someone like this 30-year “elder statesman” is flouting the rules so egregiously, they usually can’t help blustering about it.  He may have complained to others, at all levels, about the “SOB, dumbass, rule-jockey, non-client service, idiot, loser, dweebs” who were bugging him to respond to their inquiries about his annual certifications.
He may be the type that couldn’t help boasting about his success in the stock market and the lifestyle it afforded him.  He worked for thirty years.  His clients have been getting rich all along.  He deserved it. He probably also liked being the sugar-daddy for all the charities he was involved in.  That money doesn’t grow on trees.
I am also surprised that Deloitte doesn’t appear to have a process in place that most other firms I’m aware of, including PwC, have.  PwC, for example, has a whole team of auditors in their Jersey City office whose only job is to request tax returns, brokerage, bank and other  investment statements from folks that either come up for review based on a “random sample” or are high risk like Mr. Flanagan.  They have this process because their colleagues at Coopers and Lybrand had screwed up on this stuff so badly before PriceWaterhouse bought them and they were forced to put it in place.
Mr. Flanagan was in a position where there wasn’t much he or his family could invest in.  As a leader in Chicago, the region and for his practice, he was restricted from investing in anything audited by these groups.  It’s tough.  These guys and gals now really have to be careful. They can’t even have a checking account with an overdraft protection service at any banks that the firm audits.
Why didn’t Mr. Flanagan get audited, in hard copy, with requirements for internal Deloitte compliance folks to see his statements and match this information to his and his families’ tax returns, every year, and to the “restricted entity” lists?
Or maybe Mr. Flanagan did get audited. Maybe they asked for this info and he blew them off. Or maybe they were given documents that didn’t match up or were incomplete.  Or maybe he kept putting them off. Or maybe he had been called on flouting of the rules many times but no one in the partnership was willing to call him into the Principal’s office and whack his knuckles with a big ruler once and for all.
In my experience, a partner with so many years on the job, so many years of service before the independence requirements, before all the compliance requirements, before government regulation of the profession, is a partner who says to the the rest of the firm, “Stick it in your ear!”
Or words to that effect.
No one can touch me.
And they didn’t.
I hope the SEC looks carefully at the Deloitte internal compliance function:
-How they pick their samples of who to audit more thoroughly and frequently for independence compliance;
-Whether they select guys who are high risk for hard copy documentation on a frequent basis;
-Whether very senior partners are involved in enforcing the rules, in insuring follow-up on missing documentation, and in bringing in partners who blow off the internal compliance team.
What type of followup process and discipline process does Deloitte have?  The other Big 4 had to beef these processes up only after similar cases forced Department of Justice consent decrees, forcing the cleanup and strengthening of internal compliance policies and procedures. If Deloitte has escaped with “Compliance Lite,” then the firm is clearly at fault and should be in a weaker position, unable to sit on a high horse and portray Flanagan as a “rogue” partner.
He may be a rat to the profession, but Mother Deloitte also deserves to be tried, and not allowed to throw its babies under a bus.

67 replies
Newer Comments »
  1. Anonymous
    Anonymous says:

    To suggest Deloitte is “Compliance Lite” is a joke and holds no merit.

    Focus on facts and not speculation; This guy somehow overrode internal controls and broke the law.

    There is probably nothing Deloitte could have done to prevent his actions; perhaps Deloitte’s detective controls can be strenthened but at that point the damaged has already been done.

  2. Francine McKenna
    Francine McKenna says:


    Hmmmm I think you auditors call it, “Tone at the Top.” Unless you deny that with companies like Sears, Walgreens and USG involved Mr.Flanagan was not one of the top guys?

    Deloitte’s Compliance function not finding this themselves or worse perhaps knowing and letting him blow it off? Epic failure. But then the SEC will come to the final conclusion. One that isn’t beholden to Deloitte’s prior joined-at-the hip relationship with the Bush Administration.

  3. Francine McKenna
    Francine McKenna says:


    PS. I can speculate and give the SEC some things to look at all I want. I’m free.

  4. Anonymous
    Anonymous says:

    I enjoy you blog and think you do a good service in discussing certain items relevant to our profession that may be ignored by the mainstream media. However, in this case it seems like you are pursuing a biased agenda. To look at the case of one partner’s non-compliance and all of a sudden attribute a culture of non-compliance to the rest of the firm (and use a salacious title to boot, no doubt to pick up hits from search engines) is disingenuous and unprofessional. You’re usually better than this.

  5. Anonymous
    Anonymous says:

    One thing that gets me – the Chicago office has, for quite a while, subsidized the vending machine drinks, snacks, etc. and we've paid cost. Walking into the office today, I see they've jacked the prices up, so that D&T Chicago is now in the vending machine business. I'm all for diversifying our service lines, but I went downstairs to a convenience store instead. I guess they won't have us show the interns our snack machines any more during guided tours.

    This is typical of a firm that does not show good business sense -marginal savings that will increase disgruntlement in a stressful time.

    We have senior partners costing us (and our clients) tons in legal fees, lost reputation, etc, and we're mulling over cutting out holiday parties, perks, etc. Don't give me the "times are hard" line, either, as we're probably not even making up the legal fees for the Flanagan debacle.

    As for compliance lite – completely true. It's on online survey, you scroll down to the bottom, hit submit, repeat next year. We don't audit that way(?), and we sure as heck shouldn't risk our reputation with such a check-in-the-box system. As this case clearly demonstrates. So no, it isn't unprofessional or irrelevant to point that out. Thank goodness someone cares.

  6. Anonymous
    Anonymous says:

    Look at how DT handled the layoffs. Other firms layoff, and you don’t see the negative blogging that Deloitte has received. This firm likes to play media darling and thinks it can spin its way out of anything. Can anyone else name the EY, KPMG, and PwC Debra Harrington (PR BS) counterpart? At DT, the correct term is realignment (not layoff). Who can argue with a realignment?

  7. Anonymous
    Anonymous says:

    Fran, you and Ryan are so correct to note this huge compliance failure. Flanagan was, as reported, a senior partner, a member of the Deloitee leadership team. As such, he should have been a role model for Independence and other mandated controls.

    Let’s see … where do I recall hearing about a senior partner who flouted the rules, ignored professional standards, and was fired by his firm when the lawyers came to call? Hmmmm … does the name David Duncan ring any bells?

  8. Chicago Accountant
    Chicago Accountant says:


    As usual I want to throw in my two cents. To assume the majority of people are not in compliance is just wrong.

    However, I do agree with you on one point. Either the controls were not there or the controls were not followed. Personally, if I were the lonely independence auditor and the vice chairman either said, “i’m busy, please leave” or provided incomplete information, I would find it difficult to escalate it. If I did escalate it, who would listen?

    Again, this had gone on for years. If there were audits, odds are he would have been selected at least one year. Deloitte should sue itself. I mean, how many partners are there and how many are included in the random sample each year? This isn’t a hard thing to figure out.

  9. Anonymous
    Anonymous says:

    EY or PwC had this issue recently as well – but almost more willful – it was TS employees trading on direct info from deals they worked on.

    This haughty big dog deserves to get the book thrown at him…it’s people like this (and David Duncan’s of the world) that threaten the jobs of thousands with stupid, greedy and callous acts.

    Bottom line – follow the rules and if you want to invest in various securities without limit – don’t work for a Big 4. And was Flanigan’s salary so puny that he needed to be investing – given the way the markets have behaved in the past year I venture to guess this all was not worth it. Hubris…

    Good job putting this out there Francine – more of this reporting/blogging would be awesome…

    I just have one question but not a critique – why did you wait so long to post (in the blogosphere 1 week is an eternity).

  10. Francine McKenna
    Francine McKenna says:


    I actually Twittered the news on the 31st. Follow me on Twitter!

    That was the first time it was outside of Deloitte except for Courthouse News, the legal wire service. Securities saw my twitter and blogged then nothing. Then finally yesterday Huffington Post. It’s now out today at Crain’s and Tribune and Reuters after my post and more posts by Securities and Ryan at Huff Post.

    Frankly I had other things going on including being preoccupied with election, and other writing things I am working on. But when I saw the Huff Post story last night, then spoke to Ryan I knew his story would make it go public. So I blogged this morning. Can’t always be as timely. I sometimes stew on a story and think to much about all the stuff I’m going to write. I actually left out mention of another Deloitte story related to this and will blog a followup over the weekend. Ryan at HuffPost has a particular angle he’s interested in and Bruce at SecuritiesDocket another. So we all complement each other. It’s not competitive.

    By the way, I was quoted in Chicago Tribune on the story late today.,0,3714147.story

  11. Anonymous
    Anonymous says:

    Annual independence declaration is a joke.. Basically you can put a No to everything and nobody would ask you a question… And in Big 4 hieararchy if a partner says “No”, it is a No and nobody dares to question it!!

    A few questions here to start with:

    1) How often Deloitte checks their internal expense reports leave alone the independence declarations? (I know one Sr. Manager who was supposed to do an audit for a region got laid off.. Not sure whether she started the audit or not)

    2) How likely a partner would cooperate in an independence follow up if an intern from his office, a senior in R10, or a manager in Hermitage is sending him the request? (Is the only answer “Delete it”?)

    3) Is it enough to have SEC and PCAOB to take care of these giant accounting/consulting firms who know most of the tricks of the trade?

    And last comment (a little off the topic), Deloitte has prepared a 3 day “Fraud” seminar for the IIA. In that 3 day seminar they talk about how to be careful about the people who are high-up in the food chain, how to figure out if an executive/partner commits unethical behavior, and how they are experts of figuring out these kinds of situations. And it took them 30 years to figure out Mr. Flanagan? hmm..

  12. Anonymous
    Anonymous says:

    My understanding is that Partner candidates go through a thorough Independence as part of the consideration process. (My friend called it a “proctology exam.”)

    At Andersen I was chosen for a (random?) Independence audit and it was quite thorough, thank you very much. I was a manager at the time.

    So I’m wondering at the extent of the controls at Deloitte (and perhaps other Big 4 firms) as they are applied to Partners? If Deloitte wants to get on top of this debacle, seems to me somebody would be discussing the current state of the control environment and what “corrective actions” the firm plans to take. Of course, a culture of transparency and openness is not the status quo, for any of the firms. …

  13. Anonymous
    Anonymous says:

    I’ve been following your blog since I was laid off in August…I have to say I have to disagree with some of the comments from apparent Deloitte employees. For one, there is not simply the annual independence rep. Once you become a managaer – you must complete the Deloitte Tracking and Trading system. In this database you need to list EVERY insurance policy, bank acct, loan, investment that you have…it is not merely a matter of saying “no” and submitting. Also, from personal experience..Deloitte’s independence policy is more stringent than the SEC/PCAOB to try to prevent even getting close to overstepping the boundaries. I do agree though that the “detection” controls are prob weak though. If random checks are made, I’m not aware of it…but you are also signing a document that you have included all relevant info.

  14. Francine McKenna
    Francine McKenna says:


    Thanks for your comment and to others who have commented so far.

    Many of my readers are those at the beginning of their career so their exposure to what managers, and partners may be required to do may be limited. It’s good to hear from all sides.

    Keep in mind… The accusations are very, very, very serious. Insider trading is at the top of the SEC’s enforcement agenda. Mr. Flanagan is getting sued by Deloitte for civil issues related to his responsibilities as a partner of the firm. But what the SEC is investigating is criminal. That trumps all.

    So if anyone has any other insights they would rather share one-on-one, please call me at 312-730-4884 here in Chicago or email me at fmckenna@mckennapartners. I will protect your confidentiality. It’s critically important to hold professionals, as well as their firms, to the highest standards in order to protect all of our reputations as professionals.


  15. Anonymous
    Anonymous says:

    Wonder if the SEC will kick DT off as the auditor of the companies where Flanagan was the audit partner and the companies audited by his fellow partners. Lots of lost $$$ in a bad economy. DT suing Flanagan is just one defense mechanism to prevent the SEC from shutting DT down completely. New grads may want to steer clear of this firm for a few years. Anyone know whether David Duncan was ever sentenced?

  16. Anonymous
    Anonymous says:

    Tom Flanagan is registered on His title is “Vice Chairman.” Wow! This looks really bad for Deloitte.

  17. Francine McKenna
    Francine McKenna says:

    @2:28:00 You’ve got to wonder what his purpose for being on Linked In was. Thirty years at the same place? Sort of a boring profile. Maybe he just liked listing all those prestigious charity board roles. Treasurer at Lyric Opera? On Board of Museum of Science and Industry and d Boys and Girls Club? It takes big dough to sit on those Boards. You have to donate big and fundraise big. Did Deloitte donate to these institutions based on his involvement? Maybe they should all check their books, especially Lyric.

  18. Anonymous
    Anonymous says:

    It seems like PwC and EY do deserve TARP. The remaining firms, KPMG (tax shelter nightmare) and Deloitte (see Francine’s blogs and comments from Deloitte employees), really should not audit anyone.

  19. Anonymous
    Anonymous says:

    There seems to be inherent flaws in the way that Deloitte operates. In an organization where employees are well respected and treated, there is a sense of ownership and pride taken by the employees of the organization. With the significant amount of negative layoff blogs from Deloitte, and in this case, someone at a senior level who would share information so detrimental to the firm with Francine, you have to wonder about the firm itself and its leadership. In a culture where it is okay to screw people on a daily basis, it becomes an everyone out for themselves environment. I suggest that Deloitte leadership take a good look at itself and its organization and fix the problem. PR/spin control can work, but not when your own employees have no respect or loyalty towards the organization.

    It is often stated that children growing up in homes of abuse will either abuse themselves or be abused. Unfortunately, sometimes this becomes a never ending cycle, despite the best intentions.

  20. Anonymous
    Anonymous says:

    Former Deloitte employee here. A couple of comments.

    One – very easy to circumvent the independence issue. The ‘system’ at Deloitte simply asks you to list your securities, bank accounts, roles on Boards, etc. No one checks what you input, to make sure that it is complete. I completed mine when I joined Deloitte in 2002 and never updated it. They also ask you to review on a weekly basis the 100+ companies worldwide that are now clients in some way or another and to sell securities you may own in these companies. Most people delete these emails without ever looking at them. It is now up to the system to ‘catch’ you and request that you dispose of your holdings in the company.

    Second – regarding the comment above: “In a culture where it is okay to screw people on a daily basis, it becomes an everyone out for themselves environment.” This is 100% true and it will never get fixed at Deloitte as the partners are the main culprits, from the newest to the oldest partner. Unless you clean house of all partners, this culture will always exist there. Great place to start a career, but after 2, 3 or 4 years, time to move on to something more stable, more sane.

  21. Anonymous
    Anonymous says:

    Deloitte employee here as well. While you make some valid points, i thought you might want to think about the fact that the rumor among partners is that Mr. Flanagan actually altered his tax returns to not include these investments…if this is true, even if he were subject to audit…his tax return would match the tracking and trading database and how was Deloitte supposed to detect? If this is truly the case, isn’t Mr. Flanagan a criminal (tax evasion)? Are you indicating Deloitte should have internal controls that cover tax evasion and outright criminal activity?

  22. Anonymous
    Anonymous says:

    @9:16pm Former Deloitte Employment

    What was the retention rate at DT when you left?

    At EY we used to have about ~30% of people leaving after their CPA to Wall Street pre Subprime but now everyone’s pretty thankful they still have a job-but still uneasy. We’re starting to have people pull all nighters probably to try and distinguish themselves from the pack. I agree, great career start line but with the culture perhaps a mid tier would be better. Our partners aren’t too bad although the guys who I think will be on the TARP assign could use a little bit of Francine’s help.

    Current EY employee

  23. Anonymous
    Anonymous says:

    Anonymous 10:59 Saturday asks, basically, if you can really catch someone in the act if they are evading taxes, have a sophisticated fraud scheme, etc.

    Perhaps no, not any more than we can detect all fraud in audits. But it doesn’t excuse the lack of good faith effort. I take your point, but think this case still highlights a BIG problem.

    BTW, heard Flanagan is extremely arrogant, seems to fit the profile of a wealthy guy risking this much to make relatively few bucks.

  24. Anonymous
    Anonymous says:

    Highlights bigger issues? i find that to be a stretch. If the facts play out that mr flanagan is a criminal…then i find it tough to identify the bigger implication? given the facts known right now, couldn’t this potentially be none other than one greedy partner willing to do criminal acts for a minimal financial gain…? it could be much bigger than that, but I don’t think those facts are widely known at this point. All other is pure speculation.

    francine appears willing to stretch to a conclusion that this is a widespread issue before the facts are all on the table, i certainly am not. Francine can indicate it’s her place to bring light to things and speak her mind, which is true. however, my take is that Francine likes the fact that her sweeping conclusions generate more internet hits. Sure, speak your mind and make your thoughts known, but the more gambles you take at salacious titles and outrageous conclusions, the more your blog becomes just salacious titles and sweeping accusations. I think you are smarter and owe your readers more than that.

    Francine, take a look at your post objectively and you will see your hatred for Deloitte and you attempt for increased “web search hits” is very apparent in your quick attempt to jump to very broad conclusions on a very limited set of fact patterns. I think you are a smart woman but are starting to get a little full of yourself and the publicity your blog is getting. Just my opinion.

  25. Francine McKenna
    Francine McKenna says:

    Note to Commenter on November 8, 11:50 am who posted a comment starting, “Typical. Deloitte leaves the rogue partner in charge and wants to get rid of the partner who embodies all the characteristics of what a partner should be…”

    I have reconsidered and put this comment back in pending status. I’d like you to repost the spirit of the comment with a little less specific identifying information. I appreciate your sentiment but do not want to harm anyone who is still at the firm or may be transitioning out.

  26. Anonymous
    Anonymous says:

    how can francine hate deloitte when she has never worked for deloitte. you can’t argue that her blogs attract a lot of deloitte employees who appear to hate deloitte. its time for deloitte to focus internally on fixing its problems rather than blaming someone else for them.

    wonder how my “deloitte employees” that posted above are really employees

  27. Francine McKenna
    Francine McKenna says:


    I make no conclusions, just base my questions on my inside knowledge of how the compliance functions in the audit firms do, or in this case, do not work. A salacious title would have been, “Deloitte insider trading scandal” or something like that. That, and writing a racy post as soon as I heard about it, would have would have generated a higher Google rating. And the Tribune called me, not the other way around. My choice of title for the blog reflects my deeper interest in the issue of audit firm compliance structures, regulatory oversight and the lack of enforcement in a meaningful way of these types of laws and regulations. I will be writing tomorrow on the broader issues.

    In the meantime, I am glad to see broader coverage of these issues. And I don’t hate Deloitte, PwC, KPMG, or EY. On the contrary. My philosophy is the same as my attitude about aggressive canine breeds like Rotts and pit bulls.

    Don’t blame the breed, blame the bad owner.

  28. Anonymous
    Anonymous says:

    No conclusions? don’t hate the big 4? Ok — that’s a stretch for sure. I am still waiting for a post that posts the big 4 in a positive light. I guess I haven’t been reading long enough. To me, it just seems that you thrive on scandals and “sticking” it to the big 4. You can have your opinion and I’ll have mine. I think that like any company, there are good and bad eggs, but you seem to love to conclude that the Big 4 is full of bad eggs. It’s actually getting very old and tired.

    I used to think you liked to debate issues from all sides. But, lately the issues presented and the what if’s seem to be all slanted against the Big 4. You obviously are not objective enough to read how you come across.

    I’m not blaming you for stating opinions which are clearly not based upon known fact. I am saying that the more you have opinions that are always slanted against a particular group, your arguments will lose merit. For example, “I think they were are of this guy’s rule breaking…he may have complained to all others…” — prove that? You go on and on for paragraphs about what Deloitte potentially did or didn’t do right, but How about, providing small mention to the fact that this could be isolated and very unfortunate that one partner could taint the reputation of an entire firm? How about mentioning that even the best of controls cannot prevent outright criminal activity? No mention of any potential facts in this situation that would cause a less salacious outcome. Of course not –I’m beginning to learn that you are known for spouting out on all of the things the Big 4 do wrong, and don’t ever provide a balanced perspective. That’s ok–you’re entitled to your slanted view of the world. I just think you are too smart to be marketing yourself in that manner.

  29. Anonymous
    Anonymous says:

    Attacking Francine is not going to make the Flanagan issue go away. Thankfully, Francine provided easy access to the Flanagan compliant so that I could draw my own conclusions. I echo Francine’s question — how does this happen? Did Deloitte really not know, or did it choose to remain ignorant? Afterall, Flanagan was clearly a rainmaker, and he clearly contributed to the Deloitte bottom line (if you know what I mean). Maybe Flanagan will follow in David Duncan’s shoes and unveil all sorts of nasties against Deloitte in exchange for reduced (or no) sentence. Should be interesting for Deloitte. Keep them coming, Francine.

  30. Anonymous
    Anonymous says:

    Francine – to your comment above – SEC only has civil authority – even for insider trading. So if they are investigating it will be a civil money penalty and possible barring Flanny from every working for a publicly traded company, etc…

    DOJ would have criminal prosecutorial authority.

  31. Anonymous
    Anonymous says:


    AGREED. It is not what others say that DT is full of rotten apples…but what does this say for at tone at the top – this is not some service line partner or rank and file – it is a person in the highest echelon of Deloitte…akin to an executive committee member of a Fortune 500…

    This is not a knock against all DT employees but begs the question of how leadership is checking on itself. I’m not clear on whether DT brought this to the SEC or the SEC found out first and alerted DT – and as a reactive defensive measure sued Flanagan? If DT found out via the SEC that speaks volumes to the negative…if they alerted the SEC that speaks volume to the positive of tone at the top and.

    As the creed at West Point says, “I will not lie, cheat or steal, nor will I tolerate those who do.”
    It would be a good thing if DT lived up to this.

  32. Anonymous
    Anonymous says:

    KPMG used Skadden in its tax shelter litigations. The criminal conspiracy charges against KPMG has been dropped, and KPMG passed the test during its monitorship period through September of 2008.

    DT appears to be using Skadden to sue Flanagan. If unsuccessful, at least DT can rely on the Skaaden expertise obtained during the KPMG trials. I wonder if the same attorneys that served KPMG are on the case. Skaaden is not cheap, and the DT employees (and poor innocent partners) hopefully have a Plan B. I suspect that Francine will have another “salacious” blog about layoffs at this firm in the near future. Maybe early 2009?

  33. Anonymous
    Anonymous says:

    @6:10 pm, here is what a Chicago Tribune article said

    In its suit, Deloitte said it was unaware of Flanagan’s conduct until August, when regulators began asking questions. The firm said he “repeatedly lied” about his trading activities in annual disclosure forms and concealed the existence of some brokerage accounts.

  34. Francine McKenna
    Francine McKenna says:

    Thanks for clarifying on the SEC civil vs. DOJ criminal roles. I know better. We shall see…

  35. Francine McKenna
    Francine McKenna says:


    The lawsuit filed by Deloitte states that they were not aware of Flanagan’s alleged transgressions until alerted by a regulatory authority, which everyone is assuming is SEC, based on the fact that their clients started filing disclosures with the SEC that a partner from their auditor Deloitte was under investigation by the SEC. So Deloitte was squeezed from both directions to sue, in my opinion in order to take the offensive. I don’t think that prevent the SEC, PCAOB or DOJ from reviewing Deloitte’s role as a firm.

  36. Anonymous
    Anonymous says:

    Francine –

    So DT didn’t flesh this out proactively and self-report. They were in the proverbial corner and had to act – and act hard and fast.

  37. Anonymous
    Anonymous says:

    As usual, Francine picks up on a story and assigns it to an entire firm. Some clarification:

    – New partner admits undergo a rigorous independence audit.
    – Periodic, random audits of individuals’ independence are completed at all Big 4 firms.
    – Independence is a personal responsibility, and the measures a firm takes to ensure every individuals’ independence are limited somewhat. Rigorous partner admission and frequent audits are 2 reasonable measures. Detecting fraud and cover-ups, unfortunately, are extremely difficult.

    To take one instance of someone flaunting the rules and then assigning that to an entire firm is extraordinarily irresponsible. It would be far more ethical to present this for what it is; one idiot breaking the rules – not a breakdown of control of an entire firm.

  38. Anonymous
    Anonymous says:

    “-Whether they select GUYS who are high risk for hard copy documentation on a frequent basis;”

    Sexist, much?

  39. Francine McKenna
    Francine McKenna says:


    We’ll see to what extent Deloitte was or wasn’t on top of the issue and if there are weaknesses in their process. I stick with my contention that it speaks poorly that a partner of this level and exposure in the firm was able to flout the rules for so long and it was not identified by the firm but by the regulators.


    I am a heterosexual woman, so it’s a little naive to call me sexist. But I will take the criticism. I use “guys” to refer to most leadership of the firms since men still represent the vast majority. Actually, per rules of style, I should always refer to someone of an unknown gender as a woman, since that is what I am and to mixed groups, whatever the proportion using both pronouns. But that seems silly in the former case and is too much typing in the latter. So I take liberties. If I have left someone important out of the equation, I apologize. But given that my posts are 99.9% critical of the firms and their leadership, I am actually unintentionally doing women a favor. 🙂

    It just occurred to me, though, that you might be a man taking offense that I always characterize the “bad guys” as guys. In that case, whatever…

  40. Anonymous
    Anonymous says:

    Good stuff. This blog is read widely by people who want to see smack talk/details about other firms, like rubberneckers trying to see the grisly details of a four car pileup. But when it’s your firm being questioned, stop the press!

    This happens to be my firm, and I care about its reputation. A lot. Which is why I want stories such as these to see the light of day.

  41. Anonymous
    Anonymous says:

    All the firms have had rogue partners that have sanctioned by the SEC for independence violations. This partner from D&T was the first ever from D&T, although keep in mind these are allegations. Fact is, anyone can cheat and get away with it for awhile. Here is a link from the SEC website concerning a E&Y partner doing bad things (SEC announced in 2008).

  42. Anonymous
    Anonymous says:

    I’ve read a lot of your posts and it seems that you love to bash the Big 4. As a student that hopes to work at a Big 4 firm, what you write provides me with some insight into what really goes on behind the marketing rhetoric HR throws at us. However, I really would love it if you could do a post on the positive aspects of these firms. You never seem to say anything good about them and I often wonder why. I’m not naive to the fact that they are not perfect and that management/partners will engage in practises that need to be brought to the attention of others. Having said that, they do also offer great opportunities and excellent training/development that is often second to none. Why not do just one post on the enormous benefits the Big 4 can offer their employees? You just seem highly critical and negative, and lacking in any sort of balance in what you write.

  43. Anonymous
    Anonymous says:

    @644…why do you need Francine to post that when you can get that from Big 4 HR and any career fair they exhibit at? Francine is the ying to the Big 4 HR yang.

  44. In a nutshell
    In a nutshell says:

    @1600 that was funny but mean.

    @644, good side to Big 4, if you haven’t already heard, is that its an excellent place to start a career (you learn a lot in a relatively short period of time – though that depends on the clients/work exposure you get, looks good on your resume, etc etc), pay is quite good (not I-banking levels but good), employment is relatively stable, some good travel at times, exposure to some important companies (depending on your clientele again).

    Why people like Francine (sorry for speaking for her) and myself constantly bash the Big 4 is gross negligence and incompetence on audit engagements and a hypocritical lack of ethics given that they emphasise ethics so much as a profession.

  45. Anonymous
    Anonymous says:

    @in a nut…

    stable employment? really? it is deathly quiet at most firms right now on the advisory side…and ask the 5-10% who were RIF’d early this year from EVERY Big 4…not sure they would echo that sentiment. But you are correct on the other points…but as 11:16 said any of their career websites will tell you that – “i’m an audit associate and I have so much responsibility and love what I do. i got my job and wear my grey pants and blue shirt and banana republic oxfords and carry my nifty laptop bag to my client everyday and pump out those awesome spreadsheets!”

Trackbacks & Pingbacks

Newer Comments »

Comments are closed.