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Deloitte's other troubles

Deloitte and Touche LLP, America's second-largest accounting firm, has not escaped its share of corporate controversy or allegations of impropriety.

A review of published reports found New York-based Deloitte and Touche has had several hitches, squabbles or legal fights with clients, some leading to settlements, others resulting in a reduction of business.

General Motors Corp., one of Deloitte's largest audit clients, reported in April it would no longer use Deloitte for consulting services. The automaker said it was responding to investor worry over conflicts of interest by accounting firms doing consulting for their audit clients.

In 2001, GM paid Deloitte $100 million in fees, more than 80 percent of which was for consulting services, 20 percent for auditing.

In February, the firm agreed to pay $23 million to the state of Kentucky to settle a lawsuit there that alleged 23 years of professional negligence in Deloitte and Touche's dealings with Kentucky Life Insurance Co. As part of the settlement, Deloitte denied any wrongdoing.

There have been several other legal fights for Deloitte, including:

* In June 2002, struggling cable company operator Adelphia Communications Corp. fired Deloitte and Touche LLP as its auditor. Adelphia's board claimed Deloitte used questionable accounting practices, The Wall Street Journal reported. However, Deloitte probably did not realize the extent of dodgy dealings between Adelphia and the family that founded the company, the newspaper reported.

* Deloitte and Touche in 2002 faced a lawsuit by FPA Medical Management of San Diego claiming it allowed the company to hide $200 million in debts off its books, and that it should have questioned the health care company's accounting practices.

* In April 2002, I.G. Services of Texas blamed its auditor, Deloitte and Touche, for $325 million in investor losses that led to I.G. Services' bankruptcy in 1999.

* And a group of investors in May 2002 won a settlement against Deloitte stemming from bankrupt furniture chain Heilig-Meyers. Their undisclosed settlement was in a suit seeking $12.4 million in punitive damages. Investors claimed the auditor and board members misrepresented Heilig-Meyers' financials.

In March of this year, the journal quoted accounting regulators who said Deloitte would need to take “extra steps to avoid conflicts of interest.”

That's because the firm has the distinction of being the last of the four largest accounting firms that still operates a consulting business whose advice goes far beyond basic auditing.

Deloitte officials told the journal at the time that the firm wanted to sell its consulting business but could not put together a deal given a tight debt market.

But Deloitte, like other top accounting firms, continues to take its own steps to ensure its auditing services remain untarnished by its consulting activities. Its national office will become more involved in client business decisions and it has overhauled its auditing process to focus more on identifying fraud.

All accounting firms and public companies now must comply with the SarbanesOxley Act, a federal law that tightened the rules on corporate accounting.

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