Accounting firm to pay $150M in settlement over audits of failed mortgage lender

by Francis Monfort01 Mar 2018

Deloitte & Touche has entered a settlement with the US and agreed to pay $149.5 million to resolve claims related to its audit of Taylor Bean & Whitaker Mortgage, a mortgage lender that collapsed and declared bankruptcy in 2009, the Justice Department announced.

Taylor Bean & Whitaker originated mortgage loans insured by the Federal Housing Administration (FHA) in the Department of Housing and Urban Development (HUD). Deloitte served as the company’s independent outside auditor and issued audit reports for fiscal years 2002 through 2008.

As a participant in the HUD’s Direct Endorsement Lender program, Taylor Bean & Whitaker was required to submit annual audit reports on its financial statements and related reports on its internal controls and its compliance with certain requirements. The program allowed the holder of the loan to submit a claim to the US to recover losses in case of borrower default.

The settlement stems from allegations by the US that Deloitte’s audits knowingly deviated from applicable auditing standards and therefore failed to detect fraudulent conduct at Taylor Bean & Whitaker. According to the US, the lender’s financial statements failed to reflect its severe financial distress due to a fraudulent scheme that involved the purported sale of fictitious or double-pledged mortgage loans.

The US claims Deloitte’s audits enabled Taylor Bean & Whitaker to continue originating FHA-insured mortgage loans by failing to detect the misconduct. A number of officials at the lender were criminally convicted in connection with the scheme.

“With taxpayer dollars at stake, auditors must take their obligations seriously when auditing companies that participate in government programs,” said Acting Assistant Attorney General Chad Readler for the Justice Department’s Civil Division. “When auditors fail to exercise their professional judgment, and make false statements that allow bad actors to remain in government programs and submit false claims to the government, there will be consequences.”


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