Oscars flub en­gulfs PwC in con­tro­versy

‘Hu­man er­ror’ could im­pact firm’s rep­u­ta­tion as an awards mon­i­tor

USA TODAY US Edition - - MONEY - Nathan Bomey and Kevin McCoy @NathanBomey, @km­c­coynyc USA TO­DAY

The now-in­fa­mous Oscars flub en­gulfed Price­wa­ter­house­Coop­ers in cri­sis Mon­day, threat­en­ing to un­der­mine the au­dit­ing gi­ant’s rep­u­ta­tion as the Academy Awards awards cer­e­mony mon­i­tor amid jokes and ridicule by so- cial me­dia users and oth­ers.

The firm, pop­u­larly re­ferred to as PwC, apol­o­gized af­ter award pre­sen­ters Sun­day night in­cor­rectly an­nounced La La Land as 2016 Best Pic­ture win­ner. The mis­take trig­gered an off-stage scram­ble that spilled onto the stage and led to an em­bar­rass­ing re­ver­sal in which Moon­light was cor­rectly crowned cham­pion.

Next comes a busi­ness scram­ble as the New York City-based com­pany with $35.9 bil­lion in 2016 rev­enue seeks to avoid a per­ma­nent blow to its rep­u­ta­tion. Cor­po­rate ex­perts pre­dicted Mon­day that short-term dam­age is likely in­evitable but said the long-range busi­ness out­look hasn’t nec­es­sar­ily dimmed.

“At the end of the day we made a hu­man er­ror,” Tim Ryan, U.S. chair­man and se­nior part­ner of PWC told USA TO­DAY on Mon­day. “We made a mis­take. What hap­pened was, our part­ner on the left side of the stage, Brian Cul­li­nan ... handed the wrong en­ve­lope to (ac­tor) War­ren Beatty. And the sec­ond we re­al­ized that we no­ti­fied the ap­pro­pri­ate par­ties and cor­rected the mis­take.”

Ef­forts to reach both Cul­li­nan and Martha Ruiz, the other PwC ac­coun­tant who over­sees Oscars bal­lot­ing and award pre­sen­ta­tions, were un­suc­cess­ful.

The firm’s role in the movie in­dus­try’s big­gest event long has been a source of pride for the firm. Ri­vals Ernst & Young au­dits the Em­mys and the Golden Globe Awards and Deloitte Touche Tohmatsu au­dits the Grammy Awards. Both com­pa­nies, along with PwC, are among the big four U.S. ac­count­ing firms. Grant Thorn­ton, which is not as large, au­dited the 2016 Tony Awards.

PwC has tab­u­lated re­sults and mon­i­tored awards dis­tri­bu­tion for the Academy of Mo­tion Pic­ture Arts & Sciences for 83 years. The mis­take seen by 32.9 mil­lion

TV view­ers was at the end of Sun­day’s cer­e­mony in Hol­ly­wood.

For a com­pany of ac­coun­tants who pride them­selves on their com­mit­ment to ac­cu­racy, an event that or­di­nar­ily helps bur­nish cor­po­rate cred­i­bil­ity threat­ened to de­volve into a cri­sis.

Ac­count­ing is a “cre­dence good,” which means “cus­tomers don’t know to eval­u­ate” it un­less some­thing goes wrong, Univer­sity of Michi­gan busi­ness pro­fes­sor Erik Gor­don said. “You trust in the name. If you un­der­stood ac­count­ing, you wouldn’t need PwC or KPMG or any of them. “This is the most pub­lic goof up an ac­count­ing firm could make. Ac­count­ing firms are in the back­ground.”

Although a “sim­ple mis­take” is al­ways pos­si­ble, Gor­don said ac­count­ing firms are hired to en­sure pub­lic com­pa­nies, for ex­am­ple, have pro­cesses in place to avoid blun­ders.

“You pay your ac­count­ing firm a for­tune to re­view your in­ter­nal con­trol pro­ce­dures and sign off that you have them,” Gor­don said.

PwC is likely to suf­fer some im­me­di­ate rep­u­ta­tional tar­nish over the mis­take “be­cause a lot of peo­ple will re­mem­ber it and con- nect it with them,” said Stephen Hahn- Grif­fiths, man­ag­ing di­rec­tor of the Rep­u­ta­tion In­sti­tute, which helps global com­pa­nies and other clients mea­sure and man­age cor­po­rate rep­u­ta­tion per­for­mance. “In terms of long­time im­pact on the busi­ness, it’s un­likely to be a chronic chal­lenge. Quite hon­estly, mis­takes hap­pen.” Hahn- Grif­fiths added pub­lic em­bar­rass­ment could prove more dam­ag­ing for the Academy than for the ac­count­ing firm.

PwC is sure to re­main “the punch­line of any num­ber of gags for years to come,” says James O’Rourke, a cor­po­rate com­mu­ni­ca­tion and rep­u­ta­tion man­age­ment ex­pert at the Univer­sity of Notre Dame’s Men­doza Col­lege of Busi­ness. But given PwC’s size, O’Rourke said PwC would re­main in de­mand as one of the few com­pa­nies with the ca­pa­bil­ity of au­dit­ing other U.S. cor­po­rate gi­ants.

Min­utes be­fore pre­sen­ters War­ren Beatty and Faye Du­n­away an­nounced La La Land as the vic­tor, PwC tweeted a photo of its two ac­coun­tants be­hind the stage mon­i­tor­ing the process.

PwC has often bragged of its role in en­sur­ing the “in­tegrity and trust” of the Oscars out­come.

“Yes, we lit­er­ally count the votes, put the win­ning names in en­velopes, and walk them down the red car­pet in their own brief­case to de­liver them to the cer­e­mony!” the firm said in an on­line newsletter posted be­fore this year’s Os­car night.

With the re­sults of­fi­cially tab­u­lated, Ruiz and Cul­li­nan mem­o­rize the win­ners and po­si­tion them­selves on ei­ther side of the stage, off screen, with sep­a­rate brief­cases, each con­tain­ing en­velopes an­nounc­ing the vic­tors. They hand the en­velopes to the pre­sen­ters im­me­di­ately be­fore each cat­e­gory.

The Oscars gaffe isn’t the first time the New York City-based com­pany has landed in rep­u­ta­tion-dam­ag­ing con­tro­versy.

The Se­cu­ri­ties and Ex­change Com­mis­sion cen­sured PwC and hit the com­pany with a $1 mil­lion fine in a 2003 set­tle­ment of al­le­ga­tions stem­ming from the au­dit of SmarTalk TeleSer­vices, a for­mer provider of pre­paid tele­phone cards and wire­less ser­vices. The ac­count­ing firm failed to ad­e­quately au­dit a $25 mil­lion re­struc­tur­ing re­serve es­tab­lished by SmarTalk, the SEC said.

PwC agreed to the set­tle­ment and fine with­out ad­mit­ting or deny­ing the al­le­ga­tions.

“In terms of long­time im­pact, it’s un­likely to be a chronic chal­lenge. Quite hon­estly, mis­takes hap­pen.” Stephen Hahn- Grif­fiths, man­ag­ing di­rec­tor of the Rep­u­ta­tion In­sti­tute

ROBERT DEUTSCH, USA TO­DAY

War­ren Beatty, left, speaks to Brian Cul­li­nan, a CPA from Price­Wa­ter­house­Coop­ers, af­ter La La Land was in­cor­rectly named Best Pic­ture.

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