Three Big Five Firms Get Sued over 'McScandal'
Three Big Five accounting firms are dismayed to find themselves named as defendants in a lawsuit over the 'McScandal' from the rigging of McDonald’s promotional games. In a press release and Form 8-K filed on April 23, 2002, Simon Marketing, a subsidiary of Simon Worldwide, said it is suing Ernst & Young, KPMG, and PricewaterhouseCoopers. It claims the three firms failed to oversee the distribution of the "high value game pieces" used in McDonald's Monopoly and Who-Wants-to-Be-a-Millionaire promotions.
"Operation Final Answer" conducted by the Federal Bureau of Investigation resulted in the arrest of a security employee for Simon Marketing in August 2001. The employee was accused of embezzling the winning prize game pieces for more than $13 million worth of grand prizes. According to Forbes, he was supposed to be accompanied by an auditor from a Big Five firm as he traveled around the country distributing the game pieces in newspaper inserts and french fry boxes.
Forbes also said BDO Seidman conducted an investigation and found the company's controls were inadequate, since there was no segregation of duties (the game pieces were controlled by one employee), and the employee had been in the position for years.
Big Five Reactions
PricewaterhouseCoopers resigned as Simon Worldwide's auditor on April 17, 2002 and withdrew its audit report covering the company's 2001 financial statements. Speaking for PwC, Steven Silber said, "This lawsuit is totally without merit and we intend to defend ourselves vigorously."
KPMG spokesman George Ledwith said, "KPMG began performing services for Simon Marketing on Jan. 1, 2001. At that time, the authorities knew the integrity of the game was compromised, but the authorities never brought this to our attention. Furthermore," he added, "the procedures for ensuring the integrity of the game were designed and performed by Simon Marketing. We were never involved in the planning or ensuring the security of the game, and KPMG never audited or provided any audit reports on this program."
A spokesperson for Ernst & Young said, "We have never done any work for Simon Marketing. Therefore, we don't know why we are named as a defendant in the complaint."