PwC took over as auditor of the corruption-plagued global football body last year, with the intention of  reforming it. So how is it that PwC is now accused of allegedly covering up a misappropriation of funds by FIFA’s new secretary general?

It’s like déjà vu all over again.

“Yogi” Berra, the American professional baseball player, was known for his malapropisms. Since he was a baseball legend with only an eighth-grade education, he can be excused for saying oxymoronic and often contradictory things.

The Big Four global public accounting firms, on the other hand, have no excuse for ignoring obvious ironies or making statements that contradict professional standards and public policy. 

German magazine Der Spiegel has reported that less than six months after PricewaterhouseCoopers’ Switzerland firm took over as auditor of the bribery and corruption-plagued Fédération Internationale de Football Association (FIFA), PwC allegedly covered up a misappropriation of funds by its new secretary general, Fatma Samoura.

FIFA is the not-for-profit football, or soccer, association based in Zurich. Approximately 90 percent of FIFA’s revenue is generated through the sale of television, marketing, hospitality, and licensing rights for the FIFA World Cup. Despite the ongoing scandals, FIFA forecasts revenues of $5.656 billion for the 2015-2018 World Cup cycle, an increase of 5 percent over the prior period, according to its latest financial report.

In June of 2015 the U.S. Department of Justice indicted several FIFA officials for allegedly conspiring to solicit and receive more than $150 million in bribes and kickbacks in exchange for providing their official “support” to firms seeking marketing, broadcast rights, and sponsorship contracts. In one case, the FIFA officials allegedly sold votes to award the 2010 World Cup to South Africa.

KPMG, FIFA’s auditor since 1999, resigned last June and PwC took over in September. In a statement last September, FIFA officials said they welcomed the auditor change. “In light of the serious allegations involving financial transactions outlined by the Swiss and U.S. authorities, it is essential for the financial function at FIFA to be externally reviewed and thoroughly reformed,” according to the organization’s statement.

The latest scandal alleges Samoura, who earns almost $800,000 annually, hired a Swiss firm called SCJ, which has a long-term contract with FIFA, to clean her home but FIFA paid the bill instead. According to Der Spiegel, the new PwC auditors found out about the misdirection of funds in the beginning of 2017. Instead of informing the FIFA executive director or a FIFA board committee such as the Audit and Compliance Commission, PwC allegedly tipped off Samoura personally and she agreed to quietly pay back the funds. 

According to Swiss law, FIFA is required to be audited by a qualified public accounting firm because of its size. KPMG also audits a large sample of member associations around the world that receive FIFA funding on an annual basis.

In the U.S. and Europe, the global public accounting firms have stubbornly insisted that audits are not designed to detect fraud and that the auditors have no public duty to do so—unless they are paid extra for it. 

The Public Company Accounting Oversight Board, an independent federal agency created by the Sarbanes-Oxley Act of 2002 to regulate the audit industry after the failure of Enron and demise of its auditor Arthur Andersen, established standards that say “the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, including misstatements caused by fraud.”

FIFA’s new audit firm, PwC, has denied its responsibility for detecting fraud before. The firm was also the former independent auditor of Colonial Bank in the United States. PwC will stand trial later this year for alleged “gross negligence” in missing a fraud between Colonial and its partner in crime, mortgage originator Taylor Bean & Whitaker. Both banks filed bankruptcy in 2009 and several executives went to jail.

PwC recently settled mid-trial for its role in the collapse of Taylor, Bean & Whitaker, where it was not the auditor, for an undisclosed amount. Based on testimony at the trial, the firm maintained that it was duped and that its only responsibility is to follow audit standards that don’t guarantee that a fraud, especially one based on collusion between criminal clients, will be detected.

Attorneys for the bank’s creditors tried, unsuccessfully, to introduce a 2007 Wall Street Journal story into evidence that quoted former PwC chairman Dennis Nally saying “the audit profession has always had a responsibility for the detection of fraud.”

Late last month, Senators Elizabeth Warren and Edward Markey, both Democrats from Massachusetts, asked the U.S. audit regulator to investigate KPMG’s lack of oversight of Wells Fargo during the time that the bank was involved in fraudulent activities. In response to their questions, KPMG denied any wrongdoing, insisting that Wells Fargo “maintained…effective internal control over financial reporting” during the duration of the scandal.

However, KPMG also admitted that it was aware of the illegal activity at Wells Fargo for many years prior to the bank’s settlement with regulators in September 2016. KPMG knew that the board knew, too.

In the FIFA example, PwC reportedly did not tell FIFA about the misappropriation, or allow them to investigate first and take disciplinary or legal action as necessary.

Auditors of U.S. listed companies have a legal obligation, under Section 10A of the Securities and Exchange Act of 1934, to report to the Securities and Exchange Commission when a firm detects likely illegal acts that have a material impact on financial statements during the course of a financial audit, but appropriate remedial action is not being taken by management or the board of directors.

Critics might now ask, “Should PwC’s international firm take action against its Swiss member for the alleged cover-up?”

It won’t be easy.

The audit industry’s “global network” model is the legal vehicle used to drive liability around, in a Big Four version of Catch Me If You Can. The firms are members and partners only until trouble hits. When an audit firm anywhere in the world, but especially one that serves multinationals in conjunction with the U.S. firm, faces legal liabilities, lawyers typically deny the “global firm” structure that is otherwise so carefully cultivated in marketing and other public relations materials. But that contradicts actual practice required to preserve the global network of firms needed to service multinationals.

PwC has opted for this tactic before, when problems popped up in their Japanese, Russian, and Indian firms.

Arthur Andersen’s global network collapsed after the firm was indicted by the Department of Justice because its foreign member firms ran to join other networks out of fear of the financial and reputational fallout of their U.S. firm’s involvement with Enron. However, current industry fears center on the impact of shenanigans committed by foreign member firms on American member firms.

If it became necessary, PwC’s international leadership, a confederation of executives from its most powerful global firms, has few means to punish its Swiss firm for inappropriately handling the FIFA issue.

PwC’s international steering committee can wait for the Swiss or other regulatory bodies to investigate and impose sanctions. That is what KPMG seems to be doing after Switzerland’s Federal Audit Oversight Authority said it was looking into KPMG’s work for FIFA.

PwC could also pressure its Swiss firm’s leadership to punish or replace the responsible partners, like Deloitte Brazil did at the end of last year when several members of its leadership were found to be covering up a plot to falsify audit documents and lie to the PCAOB about regulatory inspections. 

If the Swiss leadership is unable to impose discipline on its own members, the international firm supported by the largest firms like the U.S. could start a “clean” firm by swooping in and stripping the tainted firm of any partners and staff worth saving. That’s what PwC did in Japan when, in 2005, some of its partners were arrested in relation to the fraudulent adjustment of the accounts at its client cosmetics manufacturer, Kanebo. PwC suspended its business in part during 2006 and then created a new firm in an effort to shed the damage caused by the scandal and start afresh.

The U.S. firm could step in and take responsibility for cleaning up a firm damaged by scandal, as PwC did in India after the local practice was rocked by arrests of partners for alleged complicity in the Satyam fraud. The Times of India reported, “[Dennis] Nally has decided to visit India once in every three months as part of PwC’s enhanced focus on emerging markets…”

However, that move implied that the U.S. firm had more control and influence over its foreign members, like India, than it was willing to admit in litigation. The U.S. firm denied responsibility for the quality of the Indian firm’s audits of the U.S. listed company. That argument was successful with the regulators but not with the courts. PwC’s U.S. firm was never sanctioned by the SEC or the PCAOB, but PwC U.S. and PwC International joined the PwC India firms—Pricewaterhouse Bangalore, PricewaterhouseCoopers Private Limited, and Lovelock & Lewes—in a $25.5 million securities class action settlement in New York.

The nuclear option would be to kick PwC Switzerland out of the global network. Grant Thornton severed ties with its Italian firm in the aftermath of audit client Parmalat’s collapse in 2003 as a result of a massive fraud. Deloitte, who also audited Parmalat, did not cut off its Milan arm. Grant Thornton International had to settle for $6.5 million with shareholders anyway. Deloitte’s Italian and U.S. firms, and its international coordinating firm, also eventually paid shareholders and creditors close to $158 million.