Audit Firm Fined $10 Million Because It Received Competitor RFP Info from Insider
The SEC fined a Big 4 auditing firm $10 Million and fined and barred the three engagement partners for receiving unauthorized and confidential information about competing bids for a public company engagement.
According to the SEC, the public company’s Chief Accounting Officer/Controller continually provided confidential RFP and competitor proposal information to the audit firm to help it win the business over an incumbent audit firm. The CAO/Controller had worked with the audit firm while serving in similar roles at prior firms and appeared to have a very close personal relationship with one of the engagement partners. The SEC faults the audit firm for failing to observe independence standards, ignoring representations about conflicts of interest and confidentiality, and recklessly using the confidential information to win the business. An internal memo after the RFP process credited the win to a “head start none of the other firms were given.”
Every service provider wants as much information as possible when participating in an RFP. When dealing with public companies and regulated entities, you just can’t cross that ethics line. Here are some guidelines: (i) don’t use material nonpublic information, (ii) don’t give internal personnel freebies, (iii) don’t lie to the audit committee and the Board, (iv) don’t violate agreements and representations, and (v) don’t create internal memos and emails describing your misconduct. The sad fact of this case is that the audit firm charged may have won the RFP without the unlawful conduct.
Read SEC Order here.