PwC and the Colonial Bank Fraud: Ethical Lapses and Violations of Auditing Standards

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Abstract

Due to the FDIC not being allowed to have confidential settlements, PricewaterhouseCoopers (PwC) was forced to go to trial for professional accounting malpractice. Thus, the December 2017 liability phase and the March 2018 damages phase of the bench trial provide a glimpse at how badly accounting firms may be auditing, and why they miss major frauds. This paper provides the background of the Colonial Bank fraud, details of how the fraud was perpetuated, and the ways in which Colonial executives and employees colluded. A brief summary is given regarding the District Court’s guilty decision and the unprecedented award to the FDIC of $625.3 million in damages. An analysis is provided of factors that may have contributed to the fraud, including suggested violations by PwC of auditing and ethical standards, an unethical tone-at-the-top at Colonial, and ethical lapses by Colonial employees.

Authors

• Donald Lamar Ariail, Kennesaw State University

• Donald Larry Crumbley, Louisiana State University