Allied Irish replacing U.S. accountant

PricewaterhouseCoopers is out as outside auditor after 35-year association

Fallout from $691 million loss

Firm kept watch on books at Allfirst since 1995

April 25, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Allied Irish Banks PLC said yesterday that it has dismissed PricewaterhouseCoopers as its outside auditor, 11 weeks after the company revealed that its American subsidiary, Allfirst Financial Inc., lost $691.2 million in one of the biggest banking scandals ever.

PricewaterhouseCoopers has been Allied Irish's outside auditor for 35 years and audited the books of Baltimore-based Allfirst since 1995, an Allied spokeswoman said.

"I suppose it doesn't surprise people, given the magnitude of what happened," said Scott Rankin, a banking analyst at Davy Stockbrokers in Dublin.

Catherine Burke, the spokeswoman at Dublin-based Allied Irish, said that a "review" of PricewaterhouseCoopers took place after the Allfirst debacle.

Allied Irish and Allfirst said the huge loss mounted as John M. Rusnak, a foreign exchange currency trader, hid millions of dollars in losses over a five-year period.

"As we are taking a fresh look at everything, we thought it would be appropriate to take a fresh look at the audit," Burke said.

The relationship between Allied Irish and PricewaterhouseCoopers was not severed completely. Burke said the accounting firm will continue to provide a range of services for the company in areas that could include tax services and information technology.

A PricewaterhouseCoopers spokesman declined to comment, saying the firm does not discuss clients.

The decision to terminate the accounting firm comes six weeks after Eugene A. Ludwig, a former U.S. comptroller of the currency, released his report on the trading scandal.

Allied Irish hired Ludwig in February to investigate how the money was lost and what went wrong inside the bank. In his report issued to the public last month, Ludwig concluded that Allfirst's internal controls were riddled with weaknesses. Some employees were inexperienced, poorly trained, poorly supervised and in some cases lazy. Two senior managers either ignored foreign exchange trading or had limited knowledge of it, the report said.

In the wake of the debacle, six employees were fired and Allied Irish appointed one of its executives, Eugene C. Sheehy, as chairman of Allfirst to replace Frank P. Bramble when he retires Tuesday.

Ludwig's report made numerous recommendations to rectify the problems at Allfirst and Allied Irish, and some of them have been adopted.

Last week, Allied Irish named John G. Heimann as "special adviser" to its board on risk management. Heimann, a former chairman of Merrill Lynch Global Financial Institutions and also a former U.S. comptroller of the currency, will address risk-related issues identified in the company's internal investigation. He will also make sure that Allied Irish's risk structure, policies, procedures and governance conform to "the best" international practices.

Allfirst also fired its head of internal audit, and the head of the risk-assessment group will retire next month. Ludwig's report recommended that both executives be replaced.

Ludwig did not look into PricewaterhouseCoopers "because of time pressures and the determination not to interfere with the ongoing audit work" of the accounting firm, the report said.

Allied Irish plans to hire another accounting firm by mid-May, Burke said.

She declined to comment on whether Allied Irish might sue PricewaterhouseCoopers over the loss. Burke noted that Allied Irish's chief executive, Michael Buckley, previously told reporters that he "wasn't laying a blame at the auditors" and didn't believe it was their "responsibility to detect fraud."

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