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Deloitte Touche Tohmatsu Limited

Deloitte Touche Tohmatsu, popularly known as just

"Deloitte", was founded by William Deloitte in 1845.

It went through a series of mergers and

reorganizations but kept its brand name along with

its quality standards and company values. Now, it

emerges as one of the most successful brands in

the world.

In 2017, it earned $38.8 billion and had

approximately 263,900 employees (the largest

among the Big 4) in more than 150 countries

demonstrating excellence in providing audit,

consulting, financial advisory, risk management, and

tax services to clients worldwide. See Deloitte

Website

2. PricewaterhouseCoopers (PwC)

With $37.7 billion

revenues in 2017, PwC

is the second largest

accounting firm in

terms of revenue. It

employs more than

236,200 professionals

in over 150 countries around the world. The

company was formed by the merger of two large


accounting firms – Price Waterhouse, and Coopers

& Lybrand. The two decided to merge in 1998 and

dedicated themselves to provide services of value

while establishing and maintaining good customer

relations.

PwC firms operate locally in different countries

around the world. These independently owned and

managed firms, like other international companies,

share common values and standards. PwC provides

excellent assurance, consulting, and tax services.

See PWC Website

3. Ernst & Young (E&Y)

Ernst & Whinney merged with Arthur Young to create

Ernst & Young in 1989. Ernst & Young is a global

organization of member firms in more than 150

countries. It employs people equipped with

professional skills and values of integrity, respect,

teamwork, enthusiasm, and motivation. These form

the core values of Ernst & Young.

The organization also values knowledge and skills

development, helping around 247,570 employees

achieve their potential through professional training

and career growth programs. Ernst & Young offers

assurance, advisory, tax, and specialty services.

Ernst & Young earned $31.4 billion in 2017. See


E&Y Website

4. Klynveld Peat Marwick Goerdeler

(KPMG)

KPMG is a global

network of

accounting firms

providing audit, tax,

advisory, special

interest and

industry-specific services. It employs approximately

197,260 professionals working together to provide

quality service in 154 countries around the world.

KPMG earned $26.4 billion in 2017.

The organization was formed in 1987 through the

merger of Peat Marwick International and Klynveld

Main Goerdeler (KMG). Like other professional

service organizations, KMPG places great value on

its people and quality of service. See KPMG

Website

Rank US Accounting Firm Philippine Member Firm

1 Deloitte Touche Tohmatsu (DTT) Navarro Amper & Co

2 PricewaterhouseCoopers (PWC) Isla Lipana & Co.

3 Ernst & Young (EY) Sycip Gorres Velayo & Co.

4 Klynveld Peat Marwick Goerdeler (KPMG) R.G. Manabat & Co.

Financial fraud is a serious white-collar crime that


often comes with heavy punishment and fines, but

the details of the misdeeds can be stranger than

fiction.

Recently, numerous charges of fraud — and alleged

fraud — have made headlines. In April, Wells Fargo

was fined $1 billion to resolve probes into lending

abuses. Elizabeth Holmes founded Theranos at 19

but her success came to a sudden halt when she

was charged with " massive fraud " in March.

Financial fraud isn't new, and the extent of the crime

can vary significantly. In some cases, billions of

dollars are lost and companies end up bankrupt.

Most cases have at least one person, but often a

group of fraudsters, going to prison.

Some cases involve forged documents, while others

focus on trying to sell an item somebody doesn't

own. Ponzi schemes are also common. Even

bitcoin has been the source of fraud.

From corporate scandals, to major forgeries, to

individual pyramid schemes, keep reading to see

the most notable, and expensive, fraud cases of all

time.

SEE ALSO: Tourists make easy marks — here

are 9 of the most common scams to watch

out for on your travels »


DON'T MISS: Here's how two wildly

successful tech entrepreneurs lost their

status amid a case of convoluted fraud »

More: Features Fraud Financial Crime

Investment

Wells Fargo

REUTERS/Noah Berger

The book on this alleged fraud case is still being

written. First, the large American bank got caught

with millions of fake accounts in an instance of

employees trying to meet quotas through cross-

selling.

Now, Wells Fargo is under fire for improperly

handling fraud cases because it closed many of the

accounts in question instead of performing the

legally mandated investigation.

The bank settled with regulators to pay a fine of $1

billion to be split by the Consumer Financial

Protection Bureau and the Office of the Comptroller

of the Currency.

Theranos

WSJ

Elizabeth Holmes promised to change the world of

medicine with new technology and lured investors

like Henry Kissinger and James Mattis and a


partnership with Walgreen's. Holmes performed

demonstrations using other company's technology

while claiming it was the work of Theranos.

The SEC charged Holmes with lying to create more

than $700 million for Theranos in outside

investments. Holmes reached a settlement and

agreed to pay a $500,000 fine, hand over 19 million

shares of the company, and is not allowed to be an

officer of a public company for 10 years.

Kirbyjon Caldwell and Greg Smith

Caldwell speaking at an event with President George

W. Bush. J. Scott Applewhite/AP

The SEC recently charged Houston based pastor

Kirbyjon Caldwell and self-described financial

planner Greg Smith in a scheme that allegedly

involved luring innocent people into investing in old

Chinese bonds with no worth, with the promise of

large returns. Twenty nine mostly elderly investors

were swindled out of $3.4 million.

A DOJ press release states that each defendant

could face as many as 30 years in prison, a $1

million fine, and five years of supervised release,

among other penalties.

Charles Ponzi

Wikimedia
The Italian-born immigrant created such an uproar

over his crimes that any investment fraud or

pyramid scheme committed bears his name. From

1918 to 1920, Ponzi ran a large scale international

trading scheme involving reply coupons on mail

stamps.

At one point, Ponzi was making $250,000 a day in

post-WWI Boston but ended up owing $7 million

and was charged with 86 counts of mail fraud.

Enron

Reuters

The Houston-based energy company had a mighty

collapse in 2001 after a failed merger and, what

was at the time, the largest US bankruptcy. Enron

committed fraud by overstating earnings. Numerous

executives were found guilty of various crimes from

obstruction of justice, money laundering, and insider

training.

Bernie Madoff

Mario Tama/Getty Images

Madoff is currently serving a sentence of 150-years

in federal prison for securities fraud. He was a well-

respected investor until it was learned that he was

operating a Ponzi scheme that lost a record $65

billion for his investors.


Madoff was turned into authorities by his two sons

in 2008.

Cendant

The convicted CEO of Cendant, Walter Forbes.

Michelle McLoughlin/AP

Accounting firm Arthur Andersen — which was later

implicated in wrongdoing with Enron — found

irregularities during an audit of Cendant .

The new company, which had formed through a

1998 merger between CUC International (CUC) and

Hospitality Franchise Services (HFS), was doomed

because CUC was overstating income by more than

$500 million for three years. After SEC charges,

multiple executives were found guilty of fraud for

submitting false reports.

Eventually, the company split its assets, dividing

subsidiaries such as Avis, Century 21, Orbitz, and

Ramada.

Frank Abergnale Jr.

Dreamworks via YouTube

Professional conman Abagnale's story is so

fascinating that it was told through film by Leonardo

DiCaprio in 2002's "Catch Me If You Can." The

infamous fraudster faked his way as a pilot, doctor,

and professor despite having zero training for any


of these fields.

Abagnale was also an expert forger who falsified

checks, passports, licenses, and other IDs.

Doubts hound KPMG following 2GO accounting scandal

But KPMG RG Manabat says that its audit was based on the 'judgment and estimates' made by 2GO
management during that period

Chrisee Dela Paz and Sofia Tomacruz

9:30:30am July 13, 2017

9:31:19am July 13, 2017

MANILA, Philippines – The reputation of KPMG RG Manabat & Company, one of the top 5 auditing firms
of listed companies, is on the line over alleged inflated financial statements of 2GO Group Incorporated,
which are now being investigated by the Securities and Exchange Commission (SEC).

Other than 2GO, KPMG RG Manabat has also been the auditor of 34 other listed firms – such as San
Miguel Corporation – over the last few years.

Other firms being audited by KPMG include Asian Terminals Incorporated, Cosco Capital Incorporated,
DoubleDragon Properties Corporation, Macay Holdings Incorporated, and PhilWeb Corporatiion.

In a statement released on Tuesday, July 11, KPMG RG Manabat said it is confident that its audit was "in
compliance with the Philippine Standards on Auditing."
"Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material
misstatements," it added. (READ: 2GO management, auditors may face over P1-M fine)

Required reports

Companies with securities registered with SEC as well as those pubicly listed are required to disclose
annual and quarterly financial reports. These are important documents that investors and stockholders
examine when making a business decision to partner with or invest in a company.

Rule 68 of the Securities Regulation Code also requires publicly-held companies to file financial reports
that are accurate, truthful, and complete and prepared according to a set of "Internationally Accepted
Principles of Accounting."

Under SEC rules, these must also be examined and reported by internal and independent auditors to
ensure that details in reports are accurate and true.

"Financial statements originate from the company’s finance officials. Aside from external auditors, they
will also be held liable if proven there is fraudulent misrepresentation, or even deficiencies, meaning
they failed to comply to international financial reporting standards. That's under Rule 68," SEC
chairperson Teresita Herbosa said on the sidelines of an event in Makati City on Tuesday.

Roberto Manabat, a local partner of KPMG, should be well aware of this as he was the first General
Accountant of SEC. In this capacity, Manabat helped to put in place standards for the review of financial
statements submitted by listed companies.

What's being investigated?


2GO last week restated its 2015 and 2016 financial statements, after a special audit requested by the
firm's new management – a development that is turning out to be a major accounting scandal.

The restated financials pruned a whopping 90% off 2GO's net income in 2015 to P109.131 million. It also
turned out that its 2016 net income should have been 74% lower than what was reported.

The special audit conducted by SGV & Company also showed that in the 1st quarter of 2017, there was a
net loss of P264.86 million, instead of the earlier reported net income of P267.562 million.

Sharon Dayoan, vice chairperson and head of audit of KPMG RG Manabat, told Rappler on Thursday, July
13: "The restatements that you now see in the news are essentially relating to items of judgment and
estimates made by (2GO's) management. When we did our audit, it was an audit on the judgment and
estimates made by management at the time that we had to deliver our opinion."

But questions now persist as to whether the buy-in price of the group of Dennis Uy and SM Investments
Corporation – which recently acquired stake in 2GO – was bloated, too, assuming the financial reports
were inflated.

The restated financial statements came after SM Investments Corporation acquired a 34.5% stake in
2GO's parent company for $124.50 million. Coincidentally, Manabat has also been an advisor to the
board of SM Investments Corporation for good corporate governance since 2016. (READ: How SM
Investments acquired stake in 2GO)

Market share

Data from the Philippine Stock Exchange (PSE) showed that the top 5 external auditing firms as of
December 2016 are the following:
Sycip, Gorres, Velayo & Company (SGV)

Punongbayan & Araullo

KPMG RG Manabat

Reyes, Tacandong & Company

Isla Lipana & Company

Together, these 5 external auditing companies cater to 86%, or 261 of the 304 total companies listed on
the local bourse. (Editor's note: KPMG RG Manabat is the auditor of Rappler)

The remaining 14% of PSE-listed companies are audited by 23 other external auditing companies.

Data from the PSE likewise showed that more than half of the listed firms’ financial statements – 54% to
be exact – are checked by SGV.

This means that SGV double checks the numbers and overall financial performance of a majority of the
country’s most valuable companies, which include those led by the likes of the Sys, Ayalas, Gokongweis,
Aboitizes, Lopezes, and Manuel V. Pangilinan.

KPMG RG Manabat and Punongbayan & Auraullo follow SGV, auditing a combined 24% of listed
companies.
Moreover, KPMG RG Manabat and Punongbayan split this evenly with about 12% of PSE-listed
companies audited by each.

SGV and breakaway groups

In the case of 2GO, SGV used to be its external auditor. However, in 2014, the Board of Directors of 2GO
replaced SGV with KPMG.

Former 2GO chief Sulficio Tagud Jr told Rappler the decision was because of a "major disagreement with
SGV on the matter of treating the deferred tax asset during a 2013 audit."

This issue was escalated up to the level of the SEC, Tagud said.

SGV used to be the go-to accounting firm of almost all listed firms in the local exchange.

Washington Sycip, an icon of Philippine business who founded the local accounting firm after World War
II, has a vast network of clients, especially Who’s who in Philippine business.

However, infighting in SGV led to partners putting up their own firms. The local partners of KPMG –
Roberto Manabat and Emmanuel Bonoan, as well as their predecessors, Mario Mananghaya and Jaime
Laya – and the founders of other industry competitors are mostly or all SGV alumni.

The collapse of Enron, which was audited by SGV’s former foreign partner, Arthur Andersen, also shook
up the local industry as global giant Ernst & Young decided to drop its local partner, Punongbayan &
Araullo, to join forces with the dominant SGV.
As the Philippine economy grew and as more multinational companies set up shop here, SGV’s
competitors aligned with Ernst & Young’s global rivals, further reducing SGV’s dominance over the years.

KPMG RG Manabat has been among the beneficiaries of these shifts.

Due process

When it comes to choosing an external auditor to go over the financial performance and details of a
company, a company’s board and management has the power to choose who it employs to carry out this
task.

Below is a list of external auditors most frequently chosen by the 304 listed companies.

For now, the investing public needs a firm answer as to whether there are deficiencies in 2GO's earlier
financial statements. – Rappler.com

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