Accounting and Coercion

It's not just taxes

I became alarmed a few days ago when I learned that the Pentagon had terminated some contracts it had with outside vendors including the accounting mega-firm Deloitte. Presumably a cost cutting measure on the Pentagon's part, this termination with Deloitte could lead to reductions in payroll at that company, and we know someone who works there.

That was a few days ago. This morning I was thinking about ways that government interacts with large private commercial enterprises often involved the granting or withholding of monies. The means by which the current administration has intimidated many of the largest law firms, aka '“Big Law” and bent them to it's will is a case in point.

But if Big Law was vulnerable to such coercion, why not also the comparably sized major accounting firms? Deloitte is an example of one such company.

I wrote some short notes on this possibility on Substack and BlueSky and then consulted with one of the large publicly available AIs to gain more information. I will reproduce the information it reported here. The AI remarks will be italicized.

I Points of entry for an unscrupulous Administration

“Consequences:

Major accounting firms generally have Diversity, Equity, and Inclusion (DEI) policies. These policies aim to create a more inclusive and equitable workplace by addressing various aspects such as:

* Diverse Hiring Practices: Implementing strategies to attract and recruit candidates from a wide range of backgrounds, including different races, ethnicities, genders, sexual orientations, abilities, and socioeconomic statuses. This can involve advertising job postings on diverse platforms, standardizing interview processes to reduce bias, and assembling diverse hiring panels.

* Inclusive Culture: Fostering an environment where all employees feel valued, respected, and have a sense of belonging. This can include initiatives like unconscious bias training, employee resource groups (ERGs), mentorship and sponsorship programs for underrepresented groups, and promoting inclusive language and behaviors.

* Equitable Opportunities: Ensuring fair access to development, advancement, and leadership opportunities for all employees. This may involve reviewing promotion processes, providing equal access to training and development programs, and monitoring diversity metrics to identify and address disparities.

* Supplier Diversity: Some firms also extend their DEI commitment to their supply chain by aiming to work with a diverse range of vendors and suppliers, including those owned by underrepresented groups.

However, the implementation and extent of these policies can vary among firms. Some firms have made more public and significant commitments to DEI than others. There has also been some recent scaling back of DEI initiatives at certain major accounting firms due to political and legal pressures.

Do major accounting firms receive federal funds?

The relationship between major accounting firms and federal funds is complex and not typically in the form of direct grants or appropriations like some other industries. However, major accounting firms can receive federal funds indirectly through various mechanisms:

* Government Contracts: Major accounting firms often secure contracts with federal government agencies to provide audit, consulting, tax, and other professional services. These contracts are a significant source of federal funding for these firms.

* Auditing Federal Grantees: Organizations and entities that receive federal grants are often required to undergo audits. Major accounting firms are frequently hired by these grantees to conduct these audits, with the cost potentially covered by the grant funds.

* Public Company Audits: While not direct federal funds to the accounting firms, the Securities and Exchange Commission (SEC), a federal agency, mandates that publicly traded companies undergo audits by registered public accounting firms. This regulatory requirement drives a significant portion of the major accounting firms' business.

* Lobbying Activities: Accounting firms invest in lobbying the federal government, indicating their engagement with federal policies and regulations, although this is an expenditure rather than a receipt of funds.

It's important to distinguish that while major accounting firms derive substantial revenue from services related to the federal government and its regulations, they are not typically recipients of direct federal grants in the same way that research institutions or non-profit organizations might be. Their interaction with federal funds is primarily through providing services and complying with federal mandates."

II Consequences of an unscrupulous Administration use or coercion of major accounting firms

“Highly Unethical and Potentially Illegal Uses:

* Political Favoritism and Retaliation:

* Directing the firm to conduct favorable audits for political allies, donors, or friendly businesses, potentially overlooking financial irregularities.

* Pressuring the firm to initiate or intensify audits on political opponents or businesses that are critical of the administration, potentially using audits as a form of harassment or intimidation.

* Financial Manipulation and Concealment:

* Using the firm to obscure the financial dealings of the president, their family, or their close associates.

* Potentially using the firm to create complex financial structures to avoid taxes or scrutiny.

* Pressuring the firm to sign off on questionable financial statements related to the president's personal or business interests.

* Information Gathering and Leverage:

* Accessing confidential financial information of individuals, businesses, or organizations through the firm's client base for political leverage or personal gain.

* Using this information to blackmail or exert influence.

* Undermining Regulatory Scrutiny:

* Pressuring the firm to downplay or overlook potential regulatory violations by the president's allies or businesses.

* Using the firm's reputation to lend credibility to potentially misleading financial information.

* Personal Enrichment:

* Directing lucrative consulting contracts or other business to the firm in exchange for favors or access to information.

* Using the firm to facilitate personal financial transactions in a less transparent manner.

* Propaganda and Misinformation:

* Pressuring the firm to produce or endorse reports that support the president's narratives, even if those reports are not entirely accurate or objective.

The consequences of a president attempting to control or influence a top accounting firm for unethical or illegal purposes would be severe:

* Erosion of Trust: It would severely damage public trust in both the presidency and the integrity of the accounting profession.

* Legal Repercussions: The president and individuals within the accounting firm could face criminal charges for obstruction of justice, fraud, and other financial crimes.

* Damage to the Firm's Reputation: The accounting firm would suffer irreparable damage to its reputation and lose clients.

* Political Scandal and Impeachment: Such actions could lead to significant political scandal and potential impeachment proceedings.

My own feelings is that the current administration might act in such a manner and the consequences would be as bad as described. It's an irony that the accounting firms are rarely a topic and perhaps that's why this issue has been flying under the radar.

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