By Soyoung Ho
The PCAOB has quietly hired Holly Greaves, former CFO of the Environmental Protection Agency (EPA) and adviser to Scott Pruitt, as the board’s CFO. And it is likely to intensify criticism that the audit regulator and the SEC, which oversees the board, are partisan and politically motivated.
In mid-October 2019, the Wall Street Journal reported that the board has allegedly been plagued with internal strife, slowed inspection and enforcement of audit firms, among other problems. Former and current PCAOB staff members reportedly filed a whistleblower complaint in May, and in August it was sent to the SEC.
The PCAOB normally issues press releases of senior staff appointments, but it did not publicly announce that it hired Greaves. However, Greaves’s Linkedin page says that she started in September 2019. The PCAOB did not immediately respond to a request for comment.
According to her Linkedin page, Greaves went to work for the EPA in January 2017, which is when President Donald Trump was sworn into office. She worked for then-EPA Administrator Scott Pruitt who resigned amid ethics probes in July 2018.
Before Greaves was confirmed as EPA’s CFO by the Senate in February 2018, she previously served “as the senior advisor for budget and audit where she provides financial and budgetary counsel to the Agency and Administrator Pruitt,” EPA said in a news release.
Before her stint at the EPA, she was a senior manager with KPMG LLP “where she provided auditing and advisory services to cabinet-level Federal agencies,” the EPA release said.
Separately, the PCAOB hired Anna Shelby, the granddaughter of Sen. Richard Shelby, PCAOB Chairman William Duhnke’s former boss, as a project coordinator. According to her Linkedin page, she graduated from the University of Alabama this year and started at the board this past August.
After Jay Clayton became chairman of the SEC, he decided to replace all five board members for a fresh start. The PCAOB had been rocked by a scandal that former board employees and KPMG partners carried out a scheme to get a confidential list of audit clients to be inspected to boost inspection results from 2015 to 2017.
In early 2018, the board—at least in appearance—turned a chapter with entirely new board members under the leadership of William Duhnke, a former aide to Sen. Shelby, a Republican from Alabama who previously chaired the Senate Banking Committee. The board has since been reexamining every aspect of its function but has also been slow in replacing key senior staffers. For example, the PCAOB, as of October 24, has yet to name enforcement director or general counsel or held a meeting of its advisory groups this year. (See Following Leadership Change in Early 2018, PCAOB Has Yet to Name Enforcement Director, General Counsel in the September 17, 2019 edition of Accounting & Compliance Alert.)
Critics have also been upset that Chairman Clayton did not grant a second term to PCAOB member Kathleen Hamm. Instead, the seat went to a White House aide Rebekah Goshorn Jurata. (See SEC Denies Second Term for PCAOB Member Kathleen Hamm, Instead Appoints White House Staffer Rebekah Goshorn Jurata in the October 15, 2019 edition of Accounting & Compliance Alert.)
Investors had hoped that Clayton would reappoint Hamm. At the same time, Clayton said Commissioner Hester Peirce will lead the commission’s oversight of the PCAOB along with SEC Chief Accountant Sagar Teotia. Peirce is well-known for her anti-regulation stance, and investor protection advocates and two senior Democrats on the Hill expressed alarm.
In an October 17 letter to Clayton, Sens. Sherrod Brown, the ranking member on the Banking Committee, and Jack Reed of Rhode Island, asked answers to several questions, including clarifications about Peirce’s role.
“Congress did not mandate a single SEC Commissioner to have the role of ‘coordinator’ or for oversight of the PCAOB Board other than by Commission action. Furthermore, Commissioner Peirce was a longtime colleague of current PCAOB Chairman William Duhnke, which also raises questions about her selection for this role,” they wrote.
The senators were also concerned that Clayton appointed former SEC Chairman Harvey Pitt to review PCAOB’s governance following the whistleblower complaint.
“Mr. Pitt’s brief tenure as Chair of the SEC was marred by controversies including his oversight failures in the selection of the first PCAOB Chairman,” the letter said. “Selecting Mr. Pitt to undertake this review seems unwise. Any credible inquiry into the PCAOB’s governance or the issues raised in the whistleblower complaint must be considered by individuals without any history related to failed oversight of the PCAOB.”
The SEC declined to comment. Pitt had no comment.
After Congress passed Sarbanes-Oxley in 2002 to prevent another accounting scandal that toppled Enron and WorldCom and cost investors tens of billions of dollars, the SEC was tasked to appoint the board’s first members.
By a vote of 3 to 2, the SEC under Pitt’s leadership in October 2002 decided to appoint former director of FBI and CIA William Webster as the first chairman of the PCAOB. But his tenure was brief because Webster served as the chairman of the audit committee of a failing company which was accused of accounting fraud in lawsuits. At the time, then-SEC chief accountant Robert Herdman took an active role in identifying the candidates and also did much of the vetting on Webster, according to a December 2002 report by the U.S. General Accounting Office (today it is called Government Accountability Office). But the selection and vetting process was flawed, the report said.
The company, U.S. Technologies, had dismissed its external auditor a month after material internal control weaknesses were reported.
Pitt and Herdman were forced to resign. Herdman did not immediately respond to a request for comment.
Today, Pitt runs consulting firm Kalorama Partners in Washington. Herdman is managing director of the firm.
“It is hard to imagine a less appropriate choice to fill that role if the goal is credible, independent investigation. He [Pitt] represented all of the major audit firms before he went to the SEC,” Barbara Roper, director of investor protection with the Consumer Federation of America, said in an October 23 interview. “His first speech as SEC chair was the one at the AICPA conference where he promised a kinder, gentler SEC.” She pointed out it was at a time when Congress was writing Sarbanes-Oxley, but “he pushed to give the audit firms more control over their new regulator.”
Moreover, Roper was critical of Clayton’s choice of PCAOB members.
“They used the excuse of the [KPMG] scandal … to sort of bring in the entire new leadership team, but there is no evidence that is being used to fix the problem,” she said. “If anything, the long-standing problems at the agency have only gotten worse. And so, they [the senators] raise a series of questions that I think are appropriate about the failure to fill senior staffers.”
Further, she questioned whether Herdman will be helping Pitt in doing the PCAOB review. “I mean that would be a question that the senators might want to add to the list with regards to Pitt’s appointment,” Roper said.
This article originally appeared in the October 25, 2019 edition of Accounting & Compliance Alert, available on Checkpoint.
Subscribe to our Checkpoint Daily Newsstand email to get all the latest tax, accounting, and audit news delivered to your inbox each weekday. It’s free!