China Evergrande and Macy’s were among the biggest accounting scandals that surfaced in 2024, a year that saw regulators hand out record penalties for cooking the books.
Before we begin lamenting the dire state of corporate governance globally, we would hasten to point out that a few big-ticket frauds drove these penalties, rather than an explosion of malfeasance.
There were actually fewer major accounting scandals in 2024 than we have experienced for several years. This reflects generally buoyant business conditions, a backlog of work related to previous scandals, especially crypto; and a shift in regulatory focus to prioritise efficiency and cooperation in their enforcement approach.
This article highlights the key regulatory themes that provide the backdrop for enforcement actions in 2024. It then details the year’s six significant accounting scandals, outlining the nature of the irregularities and the regulatory responses.
In examining the six companies, we will provide assessments of their historical accounting quality, as measured by the AI-powered Transparently Risk Engine. Readers of this blog will know that we use this tool in our case studies as part of our broader mission to demonstrate how AI and big data can be used to accurately detect corporate misconduct well before it becomes public knowledge.
In other words, could we have seen these scandals coming? In some cases, definitely. In others, there were certainly warning signs. Read on to find out more.
Main regulatory themes of 2024
The US Securities and Exchange Commission filed 583 enforcement actions last year, down 26% from 2023. The number directed at public companies fell by 12% to around 80. There were 59 actions against issuers who were allegedly delinquent in making required filings with the SEC, which represented a decrease of 51 percent.
In spite of these declines, the SEC obtained orders for an all-time high of $8.2 billion in financial remedies. More than half of that was driven by penalties levied against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history.
In the filings, we identified six main themes:
Public company disclosure and accounting fraud
Traditional cases involving public company disclosure and accounting fraud remain the principal regulatory focus around the world, with continued emphasis on revenue recognition.
In major markets, whistleblower programs are now central to these efforts although several agencies have begun to employ investigative sweeps. These are market-wide investigations into numerous market participants for similar misconduct.
In FY 2024, for example, the SEC conducted five sweeps that led to 38 enforcement actions against public companies and subsidiaries. This represented about 48% of the total enforcement activity against public companies and subsidiaries during the year.
Political and legislative pushback
The high level of financial remedies imposed by the SEC over recent years has become a source of criticism. Investor groups and prominent politicians have called it a tax on shareholders. Although over half the remedy total in 2024 came from a single cryptocurrency case, Terraform Labs, the record figure provoked ire.
The Supreme Court issued several major decisions in 2024 with an uncertain impact on the SEC’s enforcement. In SEC vs. Jarkesy, the Court held that the SEC cannot use in-house administrative law judges to seek civil penalties for securities fraud.
The Court also issued two important decisions giving regulated parties greater latitude, and more time, to challenge rules promulgated by the SEC that exceed its statutory authority. All regulatory agencies are facing increased resource pressure, largely due to increased challenges posed by digital crime.
In December, US President Donald Trump announced that he would nominate Paul Atkins to chair the SEC. Atkins served as a Commissioner during the George W. Bush administration and has advocated a friendlier regulatory environment for crypto currencies and AI.
Rewarding cooperation
In response to worsening resource pressure, the SEC has encouraged five principles for greater regulatory efficiency:
- Self-policing
- Self-reporting
- Remediation
- Cooperation above and beyond what is legally required; and
- Collaboration
The idea is that punishment will be mitigated if companies self-report accounting problems and admit guilt. There were a record 34 admissions of guilt in 2024. Cooperation was noted in 75% of actions against public-company and subsidiaries, the highest level of cooperation since 2019.
Emphasis on AI, crypto and cyber crime
Regulators are working hard to adapt enforcement approaches to meet the challenge posed by new fraudulent schemes related to AI, cryptocurrency, and cyber spaces. Much of the SEC’s resources were devoted to ongoing crypto cases including the OneCoin Fraud Scheme and the ongoing fallout from FTX’s bankruptcy.
The cost and complexity of prosecuting these cases imposed considerable strain on the SEC’s Enforcement Division. In addition to Terraform, the SEC settled several crypto-related securities fraud charges in 2024, such as with Silvergate Capital.
In all of these cases, the SEC emphasized its recent focus on individual accountability with individual defendants facing stiff charges. Many of the newer schemes leverage social media and represent a daunting challenge to regulators.
Throughout the year, the SEC focused on “AI-washing”; false or misleading statements by companies about the use or capabilities of their AI tools. The SEC charged several companies in 2024 for failures to disclose cyber intrusions.
Emphasis on audit quality
Audit quality continues to be a major regulatory issue. Accounting scandals involving auditors were especially prominent in Australia, Hong Kong and Canada in 2024.
PwC was front and center in the Evergrande accounting scandal.
Deloitte Australia featured in an Australian Senate enquiry into allegations of improper auditing practices, treatment conflicts of interest, and the firm’s role in questionable tax avoidance schemes. The Senate committee highlighted a lack of transparency and accountability within Deloitte.
These criticisms mirrored many of the criticisms directed at PwC during its own scandal in 2023, which involved sharing sensitive government information regarding changes to tax laws.
In Canada, the Public Company Accounting Oversight Board (PCAOB) imposed a record civil penalty of US$25 million on KPMG due to infractions that occurred from 2017 to 2022. The infractions involved hundreds of professionals, including partners and senior leaders within the firm. The severity of KPMG’s penalty was exacerbated by the firm’s failure to provide accurate information during the PCAOB’s investigation.
ESG disclosures
The SEC fined an increased number of companies for ESG disclosures in 2024. Notably, Invesco Advisers, Inc. was charged for making misleading statements regarding the percentage of its assets under management that integrated ESG factors in investment decisions.
In March 2024, the SEC adopted the long-awaited climate-related disclosure rules, more than two years after they were first introduced. A challenge to the climate-related disclosure rules is pending in the Eighth Circuit. The SEC announced in April that it would voluntarily stay the final rules until that challenge is resolved. Although the future of climate disclosures remains uncertain, ESG disclosures are undoubtedly receiving increasing scrutiny.
The biggest accounting scandals of 2024
Here is our list of the most significant accounting scandals of 2024. We omit scandals involving auditors, such as Deloitte Australia; government agencies, such as the British Post Office scandal, or; political scandals such as the Liberal Democratic Party (LDP) scandal in Japan or the José Huizar racketeering case in California.
1. China Evergrande
The most significant accounting scandal of 2024 undoubtedly involved the China Evergrande Group. Evergrande has been in the death rolls since it first defaulted in 2021 and though not formally bankrupt is effectively in liquidation. Direct losses to investors are expected to easily exceed $300 billion. This makes it the largest non-bank corporate bankruptcy in history.
Accounting irregularities at Evergrande were long suspected. The Transparently Risk Engine consistently awarded the company an E or an F for its accounting quality since the company listed in 2009.
However, the accounting scandal only really broke in March 2024 when the China Securities Regulatory Commission (CSRC) accused Evergrande of artificially inflating its sales figures by approximately $79 billion over a two-year period leading up to its financial collapse.
This accusation was compounded by findings that PwC’s internal control measures were inadequate during their audits. An anonymous letter released in April 2024 highlighted these deficiencies, suggesting that PwC’s auditing practices may have contributed to the crisis at Evergrande.
On April 19, 2024, the Accounting and Financial Reporting Council (AFRC) announced an investigation into PwC’s role in auditing Evergrande. This investigation aimed to uphold public confidence in the integrity of the accounting profession and ensure accountability for any failures that may have occurred during the auditing process.
PwC faced severe penalties from Chinese regulators, including a six-month business suspension and substantial fines totaling over 441 million yuan ($62 million). These penalties represented some of the toughest actions taken against a Big Four accounting firm in China’s history. More than 50 Chinese firms severed ties with PwC due to concerns over its credibility or official pressure.
Although Evergrande’s auditor was primarily based in mainland China, it had regulatory ties to Hong Kong due to its listing on the SEHK. PwC Hong Kong was thus deeply embroiled in the saga, and this was the main accounting scandal in Hong Kong in 2024, casting doubt on not just on PwC but the quality of all audit work undertaken for Chinese companies by Kong Kong auditors.
2. Grupo de Educação e Tecnologia
Brazil has seen some major accounting scandals in recent years. Brazilian retailer Americanas SA entered bankruptcy in January 2023 with a $4 billion hole in its balance sheet due to manipulation of an obscure financial practice known as reverse factoring. This was followed in 2024 with a $2 billion scandal involving Grupo de Educação e Tecnologia (GET).
The Transparently Risk Engine fully anticipated accounting problems at Grupo Educação, giving the company consistent E ratings for accounting quality since 2019. An E rating puts a company in the bottom quintile for accounting quality globally.
The scandal was exposed when a whistleblower within the organization reported irregularities to regulatory authorities. This prompted an investigation by Brazil’s Securities and Exchange Commission (CVM), leading to further scrutiny of GET’s financial practices.
An internal audit revealed discrepancies over several years. The company, which operated a network of educational institutions and technology services, was found to have:
- engaged in practices such as recognizing revenue from fictitious contracts and inflating student enrollment numbers. This deception allowed them to secure additional funding from investors and banks, and
- concealed significant operational costs by capitalizing expenses that should have been recorded as current liabilities.
Several top executives, including the CEO and CFO, were arrested and charged with fraud, conspiracy, and falsification of documents.
The scandal resulted in significant losses for investors and affected students enrolled at GET institutions who faced uncertainty regarding their degrees’ validity due to potential accreditation issues stemming from the company’s tarnished reputation.
In response to the scandal, Brazilian regulators began implementing stricter oversight measures for educational institutions and increased transparency requirements for financial reporting across various sectors.
3. Macy’s
Ongoing cases from earlier years dominated US news pertaining to accounting fraud in 2024. This included the unfolding crypto scandals – FTX, OneCoin and Terraform – the imprisonment of Robert Kowalski for embezzlement and fraud related to the collapse of Washington Federal Bank and the Theranos fraud. Cast against these fascinating examples, the new US fraud cases in 2024 were somewhat pedestrian.
The most significant accounting scandal in the US in 2024 involved the well-known retailer Macy’s. We previously examined the Macy's scandal.
The Transparently system gave Macy’s a risk ratings ranging from D to C- in the period of alleged manipulation between 2020 and 2022, which put it in the bottom 30-to-40% of all companies in Transparently’s global database, and thus warning of significant issues with account quality..
Through the period, smoothing activity, working capital signals, income quality, asset quality and corporate governance were the principal risks flagged by the system, although the exact order changed from year to year.
The scandal revolved around a single employee who managed to conceal approximately $151 million in parcel delivery expenses over a three year period. The issue was discovered during the preparation of Macy’s financial statements for the third quarter of 2024 and raised concerns about Macy’s internal financial controls.
Upon discovering discrepancies, Macy’s initiated an independent investigation that revealed the employee responsible for small package delivery expense accounting had intentionally made erroneous entries to hide delivery expenses from the fourth quarter of 2021 through November 2, 2024.
This scandal was not significant in financial terms. The hidden expenses accounted for only about 3.5% of Macy’s overall delivery expenses, which were approximately $4.36 billion during that period. The misstatement did not materially impact Macy’s operations. It did, however, force Macy’s to delay its third-quarter earnings report by two weeks and adjust its annual profit forecast down by about 4%.
The scandal was significant because it revealed a common but often overlooked motivation behind accounting fraud - covering up errors. The employee responsible did not misstate the accounts for personal benefit. Rather, their actions stemmed from an attempt to cover up an initial accounting mistake made in late 2021.
The Macy’s case demonstrates how attempts to hide accounting errors can snowball into a major misstatement. Such cases are seldom reported but we suspect are more common than one might think. This example emphasizes the importance of internal controls, internal audits and evaluation of internal accounting processes.
4. Adani Group
In 2024, the main accounting scandal in India involved the Adani Group, specifically its subsidiary Adani Green Energy Ltd. The scandal was centered around allegations of securities fraud and conspiracy to commit securities and wire fraud. Gautam Adani, the chairman of the Adani Group and India’s second richest man, along with his co-defendants, was accused of misleading investors regarding a massive solar energy project in India.
The US Department of Justice indicted Gautam Adani and his associates for allegedly defrauding investors by concealing a bribery scheme that facilitated their solar energy projects. They were accused of misrepresenting their company’s operations to Wall Street investors while engaging in corrupt practices back in India.
The indictment claimed that Adani and his co-defendants planned to pay approximately $265 million in bribes to Indian government officials to secure contracts and financing for their projects. This was presented as a significant violation of US securities laws, because it indicated the company was soliciting investments from US-based investors under false pretenses.
The Adani Group has denied the allegations and called the indictment a “baseless move”.
In addition to criminal charges, the SEC also filed a civil action against Adani and his co-defendants for violating antifraud provisions of US securities laws, seeking monetary penalties and sanctions.
The Adani Group has been the subject of ongoing scrutiny since the short seller Hindenburg Research accused the group of improperly using tax havens in early 2023. The scandal has highlighted issues related to corruption and financial misconduct in India’s corporate sector.
Legal proceedings will take some years before we see a resolution. The Transparently Risk Engine has consistently awarded the company a rating of C- or worse over the past decade, suggesting at a minimum that accounting quality warrants caution and could be improved.
5. Lactalis
Lactalis, one of the world’s largest dairy companies, has been the subject of harsh criticism over recent years. In 2023, French prosecutors finally brought criminal charges against the company for serious fraud, involuntary bodily harm, and a failure to carry out a recall order for tainted powdered formula milk sold in 2017. The tainted milk, sold in 80 countries, caused Salmonella poisoning.
In 2024, the company faced serious allegations regarding tax evasion amounting to “several hundred million euros” over a period from 2009 to 2020. French authorities conducted extensive investigations, which included raids on various company properties and the Paris residence of its reclusive chief executive, billionaire Emmanuel Besnier.
The investigation into Lactalis is ongoing and is part of a broader crackdown on tax fraud facilitated by new legislation introduced in France. The Finance Act 2024 established a new criminal offense targeting individuals and entities that provide instruments or services to facilitate tax fraud. This legislative change aimed to enhance the ability of law enforcement to prosecute those who enable tax evasion schemes.
As of now, Lactalis has not been formally charged with tax evasion. The investigation is being conducted by the French National Financial Prosecutor’s Office (PNF).
This scandal is significant because it underscores the challenges faced by French and indeed all lawmakers in combating complex financial crimes. The UK introduced similar legislation under the Criminal Finances Act 2017 (CFA) and thus far has not prosecuted a single company despite launching several investigations.
The implications of this case are potentially monumental if a conviction is secured. It will encourage similar legislation and radically change the global tax landscape. It could be pivotal for the evolution of the EU tax regimes and impact law elsewhere.
Lactalis is a private company and is thus not currently within the Transparently database.
6. Continental
In 2024, the German automotive supplier Continental AG faced allegations of accounting irregularities related to its financial reporting practices. According to investigations and reports from financial regulators and independent audits, the company was accused of overstating its profits by approximately €250 million, primarily between 2019 and 2022.
In the years of the alleged scandal, the Transparently Risk Engine awarded Continental accounting quality scores ranging from C- to C+, consistent with accounting issues ranging from significant to modest. The system consistently flagged a need for extreme care with respect to income quality and smoothing.
The scandal came to light when internal audits raised concerns about discrepancies in the company’s financial statements. These discrepancies were primarily linked to how Continental accounted for its contracts and revenue streams, particularly in its tire division. The internal audit was initiated after whistleblower complaints.
As a result of these findings, regulatory authorities, including Germany’s Federal Financial Supervisory Authority (BaFin), launched formal investigations into the matter. External auditors confirmed that the cumulative impact of the practices amounted to approximately €250 million in overstated earnings.
The manipulation involved:
- Premature revenue recognition and fictitious sales to inflate top-line growth,
- Understatement of certain operational costs which were either deferred or omitted entirely from financial statements, and
- Overvaluation of assets such as inventory and goodwill.
The scandal led to a significant loss of investor confidence and a sharp decline in the company’s stock price. Furthermore, with the Wirecard scandal still fresh in the news, it led to calls for stricter regulations on financial reporting and increased scrutiny of corporate practices in Germany.
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