Calpers Opposes PwC as Freddie Mac Auditor

Pension fund challenges Freddie's use of PricewaterhouseCoopers for non-audit services.
Stephen TaubMarch 24, 2004

The California Public Employees’ Retirement System (Calpers) is opposing Freddie Mac’s reappointment of auditor PricewaterhouseCoopers and the reelection of members of the mortgage finance company’s audit committee, according to the Washington Post.

The pension fund giant, which owns 5.1 million Freddie shares, is taking the action because the company has used PwC for non-audit services, Calpers spokesman Brad W. Pacheco told the paper.

As a matter of policy, Calpers withholds votes from audit committee members at companies that allow auditors to perform non-audit work, elaborated Pacheco. “We believe that auditors should not be compensated or perform work for anything else besides their role in conducting the audit,” he told the paper. “It creates too many conflicts of interest, and our experience shows that it leads to problems.”

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Calpers is withholding its vote from the reelection to the audit committee of presiding director Shaun F. O’Malley, who was chairman of PricewaterhouseCoopers when the firm was known as Price Waterhouse LLP, noted the Post.

The pension fund is also withholding its votes from director Michelle Engler, wife of former Michigan governor John Engler, who was appointed to the board by President Bush. Engler’s husband “has a business relationship with the company that…could impair her objectivity,” added the paper, quoting from a recent Calpers report. Engler’s husband is an executive at Electronic Data Systems Corp., which last year received $24.1 million from Freddie Mac; the pension fund stated that EDS’s services are “negotiated at arm’s length,” reported the Post.

“We are comfortable that the services that PwC has performed and will perform for us do not and will not compromise their independence,” Freddie spokesman Michael Cosgrove said in a statement. All of the mortgage giant’s non-management board nominees are independent under New York Stock Exchange listing standards, he added.

Last year Freddie Mac paid PricewaterhouseCoopers audit fees of $41.2 million and audit-related fees of $1.4 million, according to the paper. The non-audit fees, however, came to a mere $71,851 for tax services and $321,631 for other advice.