The accounting company hired by the city to help straighten out the books for its troubled school system last week found itself on the wrong side of a half billion dollar negligence verdict.
But the company insisted Monday that decision will not impede its ability to monitor the finances of the District schools and other city agencies.
BDO Seidman was found guilty of negligence in a fraud suit brought by a Portuguese bank called Banco Espirito Santo earlier this month.
The federal civil jury in Miami ordered BDO to pay Banco Espirito $170 million in compensatory damages and another $351.7 million in punitive damages – close to one year’s revenue for the accounting giant. Court transcripts also revealed that BDO is under investigations by the Internal Revenue Service.
Jurors found that the accounting firm performed audits certifying that a financial services company had $225 million in asserts.
But the company really had only $5 million in legitimate income. Relying on the BDO audits, Banco Espirito entered a partnership with the financial firm – and lost its nine-figure investment.
Executives from BDO said such a verdict could cripple the company. BDO is in the third year of a five-year contract with the District to audit D.C.’s books.
Company spokesman Jerry Walsh said he didn’t think the verdict would have any effect on BDO’s ability to check D.C.’s ledgers.
“It’s an interim verdict, and it’s going to be appealed,” Walsh said. “The final result won’t affect the firm for two, three years.”
D.C. is relying on BDO to check every one of its agencies and to report back on its findings to the federal government. The $1 billion-plus school system is already on the “high risk” list for federal funds. BDO’s audits are supposed to provide the roadmap to financial solvency for the troubled schools.
City finance office spokeswoman Natalie Wilson said in an e-mail late Monday that her agency didn’t expect the verdict to affect this year’s audit.
