The COVID-19 pandemic is undoubtedly the Great Disruptor of 2020, but can all business woes be attributed to a singular event? According to The Washington Post, the U.S. economy was not without blemishes before the arrival of stay-at-home orders and social distancing mandates. Record-high stock prices obscured underlying areas of concern such as excessive borrowing, with corporate debt beyond $10 trillion, nearly half the nation’s annual output1.
While it comes as no surprise that retail giant JC Penney, with reported losses of $268 million in 2019, according to Forbes, filed bankruptcy almost immediately following shutdown orders, it may come as a shock that their executives received $10 million in bonuses almost immediately beforehand2. According to Reuters, massive executive bonuses were paid out by nearly a third of the more than 40 big companies which sought U.S. bankruptcy protection during the pandemic in as little as a month before filing3.
This sort of pandemic scapegoating is problematic for both financial advisors and the accounting profession, according to the CPA Journal, and the question CPAs and other financial leaders need to brace for is: “Where were the auditors4?” Indeed, throughout the length of the on-going pandemic, auditing has been a chief concern within the financial industry. Internal control, fraud risk, noncompliance with laws and regulations, and auditing accounting estimates top the list of risks, the Journal of Accountancy reports5.
Moreover, the Paycheck Protection Program (PPP) and its fast-track application process aimed at getting money into the hands of small business owners as quickly as possible could be positioning financial professionals, and especially auditors, to take a fall. In fact, Deloitte warned early on that this health crisis is fertile ground for misbehavior. In large organizations especially, where there are countless moving parts, identifying pressure points is key6.
As federal policy surrounding the PPP and future stimulus programs related to the pandemic continues to evolve, auditors and other industry professionals should focus on ethics, according to the Journal of Accountancy. CPAs should know their customers, be aware of bad actors and always investigate further when something doesn’t feel right7. The MICPA continues to encourage its members to keep detailed records and justifications based on at-time considerations for all clients experiencing pandemic-related setbacks or with PPP loans.