Comptroller and auditor

DOVER, Del. (AP) — Jurors on Friday returned a mixed verdict in the public corruption trial of Delaware State Auditor Kathy McGuiness, acquitting her of felony public corruption charges, but finding her guilty of two misdemeanors.

McGuiness, a Democrat elected in 2018, is the first statewide elected official in Delaware to be prosecuted while in office.

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As state auditor, McGuiness is responsible for rooting out government fraud, waste and abuse but was charged last year with multiple charges, including felony counts of theft and witness intimidation.

After deliberating for about four hours over two days, jurors acquitted McGuiness of the theft and intimidation charges. They found her guilty of conflict of interest, official misconduct and structuring a contract to avoid a procurement rule.

Prosecutors argued that McGuiness abused her position in hiring her daughter, structuring payments under a consulting contract to avoid accounting scrutiny, and intimidating employees who were cooperating with investigators.

The defense argued that McGuiness was the target of an incompetent and biased investigation spurred by complaints from disgruntled employees as she tried to make changes in her office following her predecessor’s 30-year tenure.

The jury verdict followed a two-week trial that featured about two dozen witnesses and hundreds of exhibits including emails, text messages, payroll records and accounting spreadsheets.

Prosecutor Mark Denney told jurors that McGuiness “used and abused” her position to hire her daughter and give her special privileges unavailable to other part-time workers. He also said she stole money from the state by paying Elizabeth “Saylar” McGuiness, 20, and having access to their joint bank account. Denney also said McGuiness ruled “with an iron fist,” harassing and intimidating employees who she suspected might be cooperating in an investigation of her office.

In addition to hiring her daughter in May 2020 when other part-time workers were leaving because of a lack of work during the coronavirus pandemic, prosecutors argued that McGuiness orchestrated a no-bid communications services contract for My Campaign Group, a consulting firm she had used in a 2016 campaign for lieutenant governor, then kept the payments under $5,000 to avoid having to get them approved by the Division of Accounting.

But defense attorney Steve Wood argued that chief investigator Franklin Robinson repeatedly made false statements in a search warrant affidavit and grand jury testimony, despite seeing documents with contradicting information. Wood told jurors the prosecution’s investigation was “incomplete, incompetent and biased from the very beginning.”

Wood also refuted allegations that Saylar McGuiness received special treatment, such as having access to her mother’s state vehicle. He noted that other part-time workers also had access to the vehicle, and that investigators failed to interview five others to determine whether they were treated differently than Saylar McGuiness.

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He also reminded jurors that Robinson admitted there was “zero evidence” Kathy McGuiness ever received any money from the joint bank account in which her daughter’s paychecks were deposited and which had been set up when she was a child.

Wood also countered the witness intimidation charges, which included allegations that McGuiness was improperly monitoring employees’ emails, by saying there were justifiable reasons for one employee receiving a performance improvement plan and two others being reprimanded.

Much of the trial testimony and evidence involved allegations regarding the contract with My Campaign Group and payments made to Christie Gross, owner of the consulting firm.

Robinson, the investigator, said in a sworn affidavit that payments to My Campaign Group were split in August and September 2020 to keep them under $5,000, the threshold requiring approval from the Division of Accounting. In fact, he and prosecutors had seen a Division of Accounting spreadsheet several weeks earlier indicating that Gross received only one payment each month, both above $5,000 and both approved by the Division of Accounting.

Denney said that, as auditor, McGuiness knew the procurement rules and deliberately took steps to evade them.

“Kathy McGuiness knew just how to play the system, and she did,” he told jurors in closing arguments.

Wood, the defense attorney, pointed to emails among McGuiness, former chief of staff Thomas Van Horn, and administrative officer Shequanna Cousin about a My Campaign Group invoice for $11,250 that had been sent back by the Division of Accounting because the purchase order for the contract had a remaining balance of only $4,350.

With Gross demanding payment for the past due invoice, McGuiness asked Van Horn and Cousin how to they could handle it, “since this is not in my wheelhouse.”

In the end, a decision was made to pay the $4,350 remaining on the purchase order and $4,900 of the $6,900 excess as a “direct claim” voucher outside the purchase order. Such payments are allowed if a change order or “after-the-fact waiver” request is submitted. The $4,900 amount meant that the auditor’s office would not have to wait for approval from the Division of Accounting because the payment approval threshold was $5,000.

Wood said Van Horn and McGuiness assumed that Cousin, who was responsible for payments and waiver requests, would submit the required waiver after returning from vacation, but they didn’t know Cousin had decided to quit and wouldn’t be returning. The waiver never got submitted.

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Hundreds of auditors at accounting giant Ernst & Young cheated on ethics tests they were required to take to get or maintain their professional licences, and the company withheld evidence of the misconduct from federal authorities investigating the matter, according to the United States’ Securities and Exchange Commission.

In response, the SEC is imposing a US$100 million (NZ$160 million) fine on the company, the largest ever on an audit firm, the agency announced on Tuesday (US time).

“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our nation’s public companies,” SEC enforcement director Gurbir Grewal said in a statement.

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things.”

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In a statement, Ernst & Young admitted to the SEC’s charges and said it is complying with the agency’s penalty.

“We have repeatedly and consistently taken steps to reinforce our culture of compliance, ethics, and integrity in the past,” Suzanne Bouhia, a company spokesperson, said in an email.

“We will continue to take extensive actions, including disciplinary steps, training, monitoring and communications that will further strengthen our commitment in the future.”

The agency found that beginning in 2017, 49 Ernst & Young professionals shared or received answers to ethics exams they needed to pass to get licensed as certified public accountants. Hundreds more cheated on courses they needed to take to maintain their standing with state oversight boards, while others who didn’t participate themselves helped facilitate the behaviour, the SEC said.

The firm’s leaders then covered up the activity, failing to report it to the SEC after the agency asked Ernst & Young about complaints it had received, and the company launched an internal investigation that confirmed the misconduct, according to the SEC.

The record-breaking fine – twice the US$50m tab that rival KPMG paid the agency in 2019 over its own cheating scandal – in part reflects the gravity of the firm’s decision not to co-operate with the investigation, an SEC official told reporters.

Grewal, in his statement, said it is “equally shocking that Ernst & Young hindered our investigation of this misconduct. This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”

Beyond the fine, the SEC is forcing Ernst & Young to hire two independent consultants, one to review the company’s ethics and integrity policies and the other to probe its failure to disclose its own findings.

The episode is not the first time Ernst & Young auditors have been caught cheating. From 2012 to 2015, an internal company investigation found over 200 firm employees exploited a software glitch in the company’s testing platform to cheat on exams, the SEC said.

At the time, the firm took disciplinary action against those employees and warned its workforce against taking such shortcuts.

“Our response to this unacceptable past behaviour has been thorough, extensive, and effective,” Bouhia said.

She said the new requirements the SEC is imposing on the company “will reinforce the steps we have already taken in the years since these situations occurred”.

Ernst & Young is the world’s third-largest accounting firm and reported a global revenue of US$40 billion in its last financial year, which ended in June 2021.

The Washington Post