“Auditor independence is critical to the integrity of the financial reporting process,” but hoo boy is it boring. It’s the idea that, if an accounting firm signs off on a company’s financial statements, it must keep itself utterly pristine and uncontaminated by any other contact with that company. The specifics are tricky, and, accountants being accountants, they tend to break the rules in stunningly dull ways, such as ”providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books they were auditing.” They love accounting so much that they do forbidden bookkeeping!
An SEC order finds that certified public accountant James T. Adams repeatedly accepted tens of thousands of dollars in casino markers while he was the advisory partner on subsidiary Deloitte & Touche’s audit of a casino gaming corporation. A marker is an instrument utilized by a casino customer to receive gaming chips drawn against the customer’s line of credit at the casino. Adams opened a line of credit with a casino run by the gaming corporation client and used the casino markers to draw on that line of credit. Adams concealed his casino markers from Deloitte & Touche and lied to another partner when asked if he had casino markers from audit clients of the firm.
That’s not even the best part; the best part is:1
On December 16, 2009, Adams drew markers, $110,000 of which remained outstanding. On January 13, 2010, D&T removed Adams from the Casino Gaming Issuer 2009 audit engagement, for reasons that were not based on his use of casino markers. Adams subsequently defaulted on the $110,000 of outstanding markers that he drew on December 16, 2009.
It’s an enumerated violation of auditor independence to have “Any loan (including any margin loan) to or from an audit client,” but never mind that! Adams took $110,000 from his client and never gave it back! (Allegedly! It’s a neither-admit-nor-deny sort of settlement.) That seems like some sort of … I don’t know, conflict of interest? Bad idea?
Also, I mean, he retired from Deloitte as a senior partner in May 2010, after 36 years there.2 The fact that he couldn’t afford to pay back the $110,000 in gambling debts that he incurred in one day at his client’s casino is, in itself, troubling.
I cannot emphasize enough that he was the chief risk officer of Deloitte. Normally you want your chief risk officer to be a boring,anonymous sort who tries to steer clear of risk. If your chief risk officer borrows six-figure sums from clients to bet — and lose — on blackjack, and then lies about it and refuses to pay back the money, then … I don’t know. There’s no then. That’s just amazing. James T. Adams, I salute you. You ended your accounting career in pretty much the most outrageous possible way. You know, for an accountant.
1 The SEC doesn’t name the “Casino Gaming Issuer,” but it does say that it filed a 10-K on March 9, 2010. A Bloomberg CFS search suggests that it was probably Harrah’s (now Caesars).
Incidentally. This is sort of terrible, but I can kind of understand it? I spent some time lightly covering gaming clients and pretty much every meeting occurred at a casino. Adams’ role as “advisory partner” on the audit was basically glad-handing the audit committee, not ticking and tying numbers; if you think of him as a relationship guy in the gaming space then it seems natural that he’d spend a lot of time hanging out in casinos and probably playing a few hands or rolls or whatever. And then maybe losing a bit of money, as one does. And then the next thing you know, etc. etc.
2 So his two-year suspension from practicing public accounting doesn’t seem particularly onerous. And the SEC doesn’t seem to be fining either him or Deloitte for this violation, or even making him pay the client back.