Louisiana Record

Thursday, February 27, 2020

McGladrey whistleblower claims Deepwater Horizon audit deeply flawed

By Louisiana Record reports | Jan 14, 2015

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NEW ORLEANS – A whistleblower who says he worked on the independent audit of the Deepwater Horizon claims facility completed by accounting firm McGladrey LLP has made allegations that the settlement process is far more dysfunctional and susceptible to fraud than reported in the publicly released audit.

The whistleblower, who appears to have filed an anonymous internal ethics complaint in the matter, said the audit entered into the court record in the Deepwater Horizon case in November has very little acceptable data to back up its assertion that damage claims are being paid accurately and to the appropriate people.

In the ethics complaint, the whistleblower characterized McGladrey's auditing team as a disorganized group that had little insight into the settlement process and who were unable to produce a proper audit.

The whistleblower said Mark McNamee, a McGladrey partner in charge of the Deepwater audit, was responsible for running up the expense tab and encouraging team members to do the same. According to the whistleblower, McNamee also allegedly encouraged staff to overbill hours worked.

“While on the Deepwater Horizon Engagement, Mark [McNamee] encouraged everyone to stay in the city of New Orleans on the weekends to ‘sightsee’ and charge the time and expenses during those weekends to ’working’ hours while in our hotel rooms,” the whistleblower said in a narrative provided to the Louisiana Record. “[McNamee] also said: “The client is willing to pay whatever costs that we incur during this engagement as long as we can get the job done.’”

The whistleblower expressed skepticism that McGladrey employees were free at the behest of the client to run up expenses, which was backed up when BP later made public complaints about the cost of the McGladrey audit prior to its release. In court filings, the oil giant has said the audit, initially slated to cost $1.4 million, ended up taking months longer than estimated and cost $14 million – or 10 times the preliminary budget.

In a statement, McGladrey spokeswoman Sara Webber Laczo said the company actively investigates any suggestion of breach of internal violations, such as those alleged by the whistleblower.

“It is our policy to take any allegations of violations of our codes governing conduct seriously, and we have standard policies and processes in place to fully investigate any reports we receive,” she said.

McNamee did not respond to a request for comment.

The 90-page McGladrey audit, released shortly before Thanksgiving, was broadly critical of the Deepwater Horizon claims center and Claims Administrator Patrick Juneau. The audit said that Juneau’s operation lacked basic internal financial controls and did not do enough to determine if the claims it paid out were fraudulent. In certain categories, McGladrey auditors said over 20 percent of paid claims lacked proper documentation. Although the audit did not say that the lack of documentation led directly to fraud, it did point out that Juneau’s employees failed to exercise “appropriate professional skepticism’’ when cutting settlement checks.

The whistleblower said the actual number of paid claims lacking proper documentation may be closer to 50 percent.

Juneau, whose office was the main point of contact for the McGladrey auditors, was provided interim reports and the opportunity to come into compliance with certain issues brought up by auditors before the audit was released. In contrast, BP received virtually no feedback during the audit process and was forced to fight in court to get the audit released.

BP has filed with the U.S. District Court of Appeals for the Fifth Circuit to have access to the interim McGladrey audit reports following District Judge Carl Barbier’s ruling that there was no compelling public interest to making them available.

The whistleblower said it was clear from the beginning that the auditing process as undertaken by McGladrey was irreparably flawed.

“There was a real feeling in the air that the entire team felt as if the audit was definitely a disaster waiting to happen,” the whistleblower said in the narrative. “When the story came out about BP Oil demanding the release of the audit report – no one that was a part of the audit was surprised; in fact we all wondered how [McNamee] was going to produce what he simply does / did not have: a justifiable audit report.”

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