The PCAOB WPA establishes a whistleblower reward program under which eligible whistleblowers would receive between 10 percent to 30 percent of the fines collected from a PCAOB disciplinary proceeding if the total monetary sanctions exceed $250,000. Establishing a whistleblower program at the PCAOB should incentivize whistleblowers to come forward when they suspect violations of PCAOB rules (standards governing audits of public companies), the Sarbanes-Oxley Act, or SEC rules. The SEC whistleblower program has been successful in protecting investors and combating fraud. Since the inception of the program, enforcement actions from whistleblower disclosures have generated more than $2 billion in financial remedies.
The PCAOB is the principal regulator overseeing accounting firms that audit public companies and SEC-registered brokers and dealers, and is authorized to take disciplinary action against audit firms for violations of PCAOB rules. As investors rely on the audited financial statements of public companies, it is critical to ensure that the audits are reliable. The PCAOB, however, has been fairly ineffective in policing the audit firms. A recent Project on Government Oversight report titled How an Agency You’ve Never Heard of Is Leaving the Economy at Risk found that “when it comes to some of the biggest firms under its jurisdiction, [the PCAOB] has taken disciplinary action over only a tiny fraction of the apparent violations its staff has identified. Meanwhile, the financial penalties it has imposed pale into insignificance compared to the fines it apparently could have imposed.” POGO’s investigation also found that PCAOB inspection reports identified at least 808 instances of defective auditing but brought only 18 enforcement cases, and that PCAOB could have fined the Big Four audit firms $1.6 billion, but has fined these firms just $6.5 million.
In addition, several recent scandals in the audit industry reveal a troubling lack of ethics that could taint the critical work that audit firms perform in ensuring the accuracy of public company financial reporting. This includes KPMG altering past audit work after receiving stolen information about inspections that would be conducted by the PCAOB and KPMG auditors cheating on internal exams.
