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Madoff’s magic touch for hedge fund accountants

With hedge funds falling faster than final salary pension schemes, it hasn’t been a particularly great year for the common or garden hedge fund accountant. Their numbers went through the roof between 2005 and 2007, but their services have been less in demand of late. Thanks to Bernie Madoff and his alleged biggest ever ponzi scheme in the history of mankind, things could be about to change.

Now that Madoff’s been outed as a possible charlatan, investors of any ilk are going to be a lot more careful about where they put their money. That means a lot more due diligence, and a lot more scrutiny of who’s auditing the accounts.

“This is going to have a significant impact on the degree to which the numbers are tested,” says John Godden, chief executive of the IGS Group, which advises hedge funds on raising money. “Accountants and auditors are going to make hay.”

Given that Madoff’s fund was audited by a three man band (comprising a 70 year old partner who was rarely there, a secretary and a man allegedly wearing tight trousers and tie-dyed shirts), investors may now err in favour of funds audited by the Big Four.

The head of hedge fund business development at one Big Four firm says it’s still early days and there hasn’t been any noticeable increase in business yet. One suspects they’ve got spare capacity: KPMG has more than quadrupled the number of auditors it employs to cover hedge funds in the past five years, while Deloitte doubled the size of its hedge fund team in 2007 alone.

Lee Bevan, a hedge fund consultant at Mirage Recruitment says accountants haven’t been high on the hedge fund wish for a while. “They’ve been looking more for salespeople and investor relations professionals,” he says. “We haven’t worked on an accounting role for at least six months, but that could change.”

Comments (15)

  1. i like the “possible charlatan ” comment..i am starting to read lots of comments about him losing it and the losses being significantly smaller than commonly alluded to

  2. You have to admire American capitalism. America gives us the opportunity to get rich any way we like including fraud on a grand scale. Can you say that about any other country?

  3. What value can auditors/accountants add? They have been hand-in-glove with charlatans like Madoff. KPMG supposedly audited Madoff’s fund on behalf of a major investment bank and found everything okay. The unfortunate bank then made a sizable investment which is now down the drain. With auditors like these, Madoffs can have field day running ponzi schemes!

  4. Reckon I’d trust an experienced auditor in a tie-dyed shirt more than a pimply faced graduate ( in corporate brown chinos) from one of the Big Four who’s total business knowledge comes from a non threatening university degree course. You need people that “know what questions to ask”. The industry is going through a paradigm change and the old approach of sending in teams of juniors, with cursory supervision from a Partner, are over. The Big Four just don’t add value anymore.

  5. You wonder, what the auditors and indeed risk managers have been doing. OK, it may be unfair to refer to some risk managers as negligent, after all, they may identify and point out the high risks involved, only for their superiors to go ahead and irresponsibly invest in such ridiculous schemes. Also, could someone please enlighten me ……. these banks, financial institutions, government councils, local authorities and organisations, are meant to be credible and trustworthy establishments, so what are they doing playing with public’s hard-earned money and pensions in such balderdash. What business do they have messing about with fraudsters in the markets?
    Is this what they intend to do with tax-payers money invested in asset relief programs? And is the financial environment regulated at all?

  6. Could not agreed with you more Wizard. I have come across some graduates who simply does not understand the concept of P&L b/sheet , accrual and so forth. How can you employed someone who is coming from a Fashion Design background to audit?That to me is completely absurd. I have a friend who works for KPMG and she has mentioned to me that there are a lot of junior auditors who don’t understand the first thing about accounting. Inexperience Auditors are so easily fool as they do not do their homework. All big firms are all about status not about knowlege. They like to employed inexperience people not experience ones. As a result of that I do not feel sorry for them.Companies and people who only thinks about image are the ones who caused the economic to spiral out of control in the first place. We need to revamp the system and stop looking at image, race and culture and concentrate more on knowledge and the Candiate potential. Instead of employing people who are just there for takings.Now is the time for Compnies to clean house and get rid of inexperience people. Big firm means nothing to me just another name
    Which one of the big four firms audit Madoffs? This is unbelievable.

  7. Here in Denmark we had a case where an it entrepreneur had been duping everyone including the board of directors for years about the activities of the company he directed. He finally went on the run recently and the fraud was uncovered. No one, including banks and auditors noticed that he was buying up nonexistent businesses and faking revenues. Stein Bagger is now behind bars and IT Factory, the company, is worthless.

    Unfortunately, I think when companies, auditors and banks hire, they are more concerned with getting people who can talk your head off and impress everyone in the room, rather than getting people who are loyal and hardworking, skilled and careful with the detail of their jobs. I have seen this all too often in the various places I have worked and done business with.

  8. Why should an auditor pursue any company if she or he are to be accused of “not being a team player”, or “rocking the boat” and generally having it made very clear that their complaints/observations/reports are essentially career-limiting. When the industry sets up a fool-proofish scheme for whistleblowers (including – say – guaranteed salary and bonus for 5 years after being outed by an enraged boss), then we’ll see some transparency and interesting noises off.

  9. Lilyrose and nemrjanus, you’ve hit the nail right on the spot, and I hope the recruiters for these Big and Inefficient Institutions are paying attention. These companies are interested in image and people who talk the talk, but not deliver the goods. Their excuse “well Mr. A is obviously clever, he got a first class, but Mr. B, even though he got a 2:2, he’ll fit right in, he knows a few people working here already, besides he represents the image of this firm, the clients will like him, and we’ll give him good training. He’s the better candidate” ….. it transpires that, it doesn’t matter that he wasted his uni years drinking away, and couldn’t be bothered to wake up and go to lectures, after all that doesn’t say much about his character…

    Its sad, but very true

  10. Isayitasitis: hear hear

  11. isayitasitis –

    why do you have such a chip on your shoulder? Can you not a get a break in high finance?

    I sense this guy is from India. Probably a masters student in a university somewhere. Listen mate, firms hire people with whom their clients feel comfortable with. No matter how smart / dedicated you are if you cannot relate to your clients you are not going to make the sale. Simple as that. This means no revenue for the firm. Yes, some bad apples get through who are lazy etc but at the end of they are business and revenues is what they are after. That is why cultural fit is so important. Finance is a technical skill and can be taught and learned. If you are staying on in UK, I think you are best suited to back / middle office role.

    Good Luck

  12. Where did you hear about this KPMG audit? Which bank made the investment in Madoff. No major investment bank has reported losses in Madoff.

  13. Where did you hear about this KPMG audit? Which bank made the investment in Madoff. No major investment bank has reported losses in Madoff.

  14. list for you

    fairfield greenwich usd 7.5 bio
    kingate management 3.5b
    banco santander 3.1b
    ascot partners 1.8b
    access int advisors 1.4b
    hsbc 1b
    benbassar & ce 935m
    union bancaire privee 850m
    natixis 602m
    rbs 601m
    bnp 470m
    fix am 400m
    man grp 360m
    reichmuth 330m
    normura 302m

    not sure which earlier poster referring to.. cheers

  15. M&A Banker,

    hehe lol, very funny. Seriously, you guys like to speculate and get it horribly wrong. What in my statement leads you to think I’m Indian? What leads you think I need a break in high finance? Masters, where did that come from? Your definition of success is running errands in some FO. I won’t brag, but I’ll let you know that unlike you, I have acheived, I have hit those dizzy heights you dream of. ….. I have a PhD, I am wealthy and successful, and believe me when I say my value is insensitive to negative changes in the economic climate.
    Also, I’m not Indian, but my principles are simple: I’m happy to employ anyone regardless of their background, if they prove to be capable and competent, and nothing pleases my clients better than satisfactory job done at a fair price. Frills, silly hair gels and fancy suits are trivial, I just need people capable of doing a job in an efficient and timely manner, meeting deadlines. No waffling, and if an Indian guy demonstrates to me that he’s capable of that in a professional manner, we shake hands.
    My concern is we have the wrong people in the right places, and I see it everyday. The Madoff scandal confirms this.

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