Tyco Woes Creating Problems for Auditor
Tyco International Ltd. has become a headache for its outside auditor PricewaterhouseCoopers, whose work is being scrutinized by investigators poring over several controversial deals that happened on the accounting firm’s watch.
PricewaterhouseCoopers said Monday that it is cooperating as an “information provider” with the Manhattan district attorney’s office on its probe of Tyco. A spokesman for the firm declined to comment on the information requested.
Tyco also confirmed Monday that the conglomerate’s accounting treatment of nearly $100 million in secret loans is part of the second phase of an internal investigation led by lawyer David Boies.
One key question for the Boies team is whether audits by PWC uncovered about $96 million in unauthorized payments to a group of employees that included former Chairman L. Dennis Kozlowski.
The Wall Street Journal reported Monday that Manhattan prosecutors are investigating whether the accounting firm knew about the secret bonuses and the methods used to hide them.
The scandal at Tyco is the latest embarrassment for PricewaterhouseCoopers.
In July, the firm agreed to pay $5 million to settle charges brought by the Securities and Exchange Commission that its auditors approved improper accounting and that it violated independence standards. It was the second-largest payment by an accounting firm to the market’s top regulator.
During Kozlowski’s tenure, Tyco became a lucrative client for PricewaterhouseCoopers, which collected $50.1 million in fees from the conglomerate in 2001. Before his indictment, Kozlowski also served as chairman of the audit committee at defense contractor Raytheon Co., which paid PricewaterhouseCoopers $84 million in fees in 2001, out of which only $4 million was for audit services.
A senior SEC official said the relationship between Tyco and PricewaterhouseCoopers could merit additional scrutiny from agency investigators.
The SEC official, who requested anonymity, said agency investigators would want to know the substance of discussions, if any, between PricewaterhouseCoopers leaders and Tyco executives about the secret loan payments, for example.