John Merchant, CPA, CFE

David Friehling, CPA has pled guilty to various charges stemming from his service as independent auditor for Bernard Madoff’s investment firm.  Friehling, who served as the Madoff firm’s auditor for nearly 18 years, issued audit reports indicating that he had performed his work in accordance with generally accepted auditing standards. He now admits that he did not conduct appropriate audits. He acknowledges that the primary flaw in his procedures was that he accepted assertions by Madoff and his employees without any independent verification.  In short, he expressed audit opinions on financial statements that he had not really audited.

In addition to doing sub-standard audit work, Friehling pled guilty to various charges related to investor fraud, income tax fraud and SEC violations.  He will be sentenced in February 2010 and could receive up to 114 years in prison and will be forced to forfeit over $3 million to the government as part of the plea arrangement.  Ironically, Friehling claims that despite all of his fraudulent work as an auditor, he was unaware of Madoff’s scheme and, in fact, had invested his own retirement funds with Madoff’s firm.

To read more on Friehling, visit http://online.wsj.com/article/BT-CO-20091103-714155.html.