Did the Clinton Foundation Have a Storefront Accountant Like Madoff?

By Pam Martens and Russ Martens: May 24, 2016

Presidential Candidate Hillary Clinton

Presidential Candidate Hillary Clinton

A growing number of red flags are cropping up around the charity operation known as the Bill, Hillary & Chelsea Clinton Foundation. The title tells you right off the bat that there is no anti-nepotism policy in place. Bernie Madoff didn’t believe in an anti-nepotism policy either: his brother, wife, two sons and niece worked for him. That didn’t work out so well for any of them.

What is thus far beyond dispute regarding the Clinton Foundation’s finances is that Hillary Clinton’s political operatives have been on its payroll and that it failed to report tens of millions of dollars in foreign government donations on its 990 tax return to the IRS. As Reuters reported last year:

“For three years in a row beginning in 2010, the Clinton Foundation reported to the IRS that it received zero in funds from foreign and U.S. governments, a dramatic fall-off from the tens of millions of dollars in foreign government contributions reported in preceding years.

“Those entries were errors, according to the foundation: several foreign governments continued to give tens of millions of dollars toward the foundation’s work on climate change and economic development through this three-year period.”

Reuters also reported last November that it had found that a major program of the Clinton Foundation, the Clinton Health Access Initiative, “had misreported funding sources by millions of dollars.” The Foundation said in response that it would refile its 2012 and 2013 tax returns known as 990s with the IRS.

This sounds like a lot of sloppy accounting. We decided to see if there was a storefront accountant involved. The storefront image came to mind because Madoff’s accountant, David Friehling, operated out of a storefront and was a sole proprietor.

According to the U.S. Justice Department, this storefront operation failed to conduct any of the following regarding the Bernard L. Madoff Investment Securities (BLMIS):

“(a) conduct independent verification of BLMIS assets; (b) review material sources of BLMIS revenue, including commissions; (c) examine a bank account through which billions of dollars of BLMIS client funds flowed; (d) verify liabilities related to BLMIS client accounts; or (e) verify the purchase and custody of securities by BLMIS. Friehling also failed to test internal controls as required under GAAP and GAAS standards. For example, Friehling did not take any steps to test internal controls over areas such as BLMIS’ redemption of client funds, the payment of invoices for corporate expenses, or the purchase of securities by BLMIS on behalf of its clients.”

But the Clinton Foundation is no Bernie Madoff accounting operation. According to 13 years of Federal tax returns available for public inspection at the public interest web site for ProPublica, from 2001 through 2012 the Clinton Foundation’s tax returns were prepared by BKD LLP, a national accounting firm that boasts of approximately 2400 employees in 50 U.S. states. That’s a long time not to have an auditor rotation. It also covers the years of 2010, 2011 and 2012 when Reuters reports, and the Foundation has acknowledged, that it failed to report tens of millions of dollars in donations from foreign governments on its Federal tax returns.

The Clinton Foundation’s 2013 Federal 990 tax return, the latest one we could locate, shows that BKD LLP has been replaced with an even bigger accounting firm, PricewaterhouseCoopers or PwC, which has operations worldwide. Would a big name like PwC automatically ensure trustworthy financial reporting?

You could get the definitive word on that question by calling Dennis Kozlowski, the former CEO of Tyco who looted over $100 million from the company, including $6,000 for a shower curtain for his corporate residence on Fifth Avenue. Kozlowski has completed his 6 and a half year prison term so he might just pick up the phone. The looting of Tyco went down on the watch of PwC.

In 2003, the Securities and Exchange Commission brought an action against the PwC accountant, Richard Scalzo, barring him from signing the audits of publicly traded companies that are filed with the SEC. The SEC noted in its complaint:

“The Commission’s Order finds that multiple and repeated facts provided notice to Scalzo regarding the integrity of Tyco’s senior management and that Scalzo was reckless in not taking appropriate audit steps in the face of this information. By the end of the Tyco annual audit for its fiscal year ended Sept. 30, 1998, if not before, those facts were sufficient to obligate Scalzo, pursuant to generally accepted auditing standards (GAAS), to reevaluate the risk assessment of the Tyco audits and to perform additional audit procedures, including further audit testing of certain items (most notably, certain executive benefits, executive compensation, and related party transactions). Scalzo did not take sufficient steps in these regards. Accordingly, Scalzo recklessly failed to conduct the audits in accordance with GAAS. The Order, therefore, finds that Scalzo engaged in improper professional conduct. The Commission denies him the privilege of practicing before the Commission as an accountant.”

According to the Los Angeles Times, a lot of money was sloshing between Tyco and PwC. In a 2002 article, the newspaper reported:

“During Kozlowski’s tenure, Tyco became a lucrative client for PricewaterhouseCoopers, which collected $50.1 million in fees from the conglomerate in 2001. Before his indictment, Kozlowski also served as chairman of the audit committee at defense contractor Raytheon Co., which paid PricewaterhouseCoopers $84 million in fees in 2001, out of which only $4 million was for audit services.” (PwC also does various forms of consulting for its audit clients.)

What was the inside General Counsel at Tyco doing while all of this was going on at the company? We reported on that back in 2008, writing as follows:

“Back in 2002, Mark Belnick, who had previously been one of the legal go-to guys for Wall Street as a rising star at corporate law firm Paul,Weiss, Rifkind, Wharton & Garrison, found himself transplanted as General Counsel at fraud-infested Tyco International. Mr. Belnick inked a retention agreement for himself and it was duly filed without fanfare at the top corporate cop’s web site, the Securities and Exchange Commission (SEC). The agreement guaranteed Mr. Belnick a payment of at least $10.6 million should he commit a felony and be fired before October 2003.

“Very prescient fellow, Mr. Belnick was indeed charged with a few felonies like grand larceny and securities fraud by the Manhattan District Attorney’s office. Mr. Belnick was acquitted of those charges and the SEC let him off the hook for aiding and abetting federal violations of securities laws with a $100,000 penalty payment and a prohibition against serving as an officer or director of a public company for five years. Mr. Belnick agreed to the SEC settlement without admitting or denying the charges. Mr. Belnick did not lose his law license…

“While Mr. Belnick was drafting his ‘felony bonus’ agreement with Tyco, he was also teaching a law course at Cornell on ethics.”

Will we ever get to the bottom of what the real truth is on the money spigot known as the Clinton Foundation? One man, Charles Ortel, armed with a Harvard MBA and a long history in finance, has publicly vowed to get to the bottom of what he is calling the “largest unprosecuted charity fraud ever attempted.”

If Ortel is right and his findings preempt Hillary Clinton’s bid for the Oval Office, he will have the undying thanks of a grateful nation for sparing us a rerun of the Hill and Bill Show in the White House, a confidence-draining possibility that a nation struggling under $19 trillion in debt and a subpar growth rate of two percent or less since the 2008 crash can ill afford.

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