December 18, 2008

Big name accountants missed huge fraud

Big name accounting firms, banks and hedge funds were all fooled by trader Bernard Madoff's alleged $50 billion Ponzi scheme, lists of service providers show.

Accounting firms Ernst & Young, PwC, KPMG and a division of BD0 International, the fifth largest accounting firm, each audited funds which funneled money into accounts at Bernard L. Madoff Investment Securities, the Financial Times reported Thursday.

Some firms were taking comfort in the fact they were not alone in their judgments, the Times reported. But that comfort might be short-lived as BDO Seidman was named in a lawsuit filed by New York Law School, the Times said.

The Securities and Exchange Commission has also begun an internal investigation to figure out how it missed the fraud.

Madoff told investigators his firm was one big lie, prosecutors said.

Cindy Fornelli, executive director of the Center for Audit Quality, said fund accountants were not responsible for auditing the underlying investments of the firms the capital management firm invests in.

As an example, if the firm you're auditing invests in AT&T, you're not responsible for auditing AT&T, she said.

However, she said accountants were responsible for making sure money was disbursed to the firms it invested in.