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  • Writer's pictureDonald V. Watkins

Did Deloitte & Touche Fail To Detect The Southern Company's Racketeering Scheme?

Updated: Aug 17, 2023

By: Donald V. Watkins

February 20, 2023

Deloitte & Touche, LLP is the accounting arm of Deloitte, LLP, the United States affiliate of the “Big 4” international accounting firm, Deloitte Touche Tohmatsu Limited in London. Deloitte & Touche was retained by the Southern Company as its independent auditor and issued annual reports on Southern’s financial condition for the period of 2011 through 2021. These reports were issued when the Southern Company and its affiliates were engaged in running and paying for an interstate, racketeering enterprise that included acts of conspiracy, bribery, extortion, money laundering, abuse of the legal process, price fixing, and obstruction of justice.

In each of the Southern Company’s financial reports for the period of 2011 through 2021, Deloitte & Touche certified that: (a) it had audited these statements in accordance with GAAP and (b) the statements fairly presented the Southern Company's financial condition in conformity with GAAP.

Each audit report issued during this period was a “clean opinion”-- an unqualified report that the annual financial statement was fair and accurate in all material respects. This rating is the highest level of audit report that a certified public accounting firm may issue.

In none of the Southern Company's annual financial reports for the period of 2011 through 2021 did Deloitte & Touche make any mention of the company’s long-running and ongoing interstate racketeering enterprise.

This criminal racketeering enterprise also allowed the Southern company and its affiliates to reap $59.7 billion in operating revenues in 2022. Of this amount, the Southern Company set aside $7.8 billion for dividends to shareholders.

The reported operating revenues for 2022 represent a substantial improvement over the company’s operating revenues in 2021. The revenues of Southern Company, itself, were up by 26.7%. Operating revenues at Alabama Power were up by 21.9%. Georgia Power was up by 25.1%, while Mississippi Power was up by 28.1%. Operating revenues at Southern Power were up by 52%. Finally, revenues at Southern Gas Company were up by 36.1%.

This remarkable jump in operating revenues from 2021 to 2022 occurred at a time when most of the Southern Company’s nine million customers were struggling to keep their financial heads above water. State public service commissions allowed the Southern Company affiliates to gouge their customers on utility bills.

State and federal law enforcement officials in the Southern Company's market territories also turned their heads to the obscene price gouging and entrenched racketeering activities.

Could Deloitte & Touche Have Detected the Southern Company’s Racketeering Enterprise?

In light of the January 27, 2023, criminal racketeering complaint we filed with the U.S. Department of Justice, legitimate questions have arisen as to: (a) whether Deloitte knew, or should have known, that the Southern Company’s reported financial statements between 2011 and 2021 (which were disseminated to the investing public) may not have been prepared in accordance with GAAP; (b) whether the external audits Deloitte & Touche conducted for the Southern Company were performed in accordance with PCAOB Standards, and (c) whether each of Deloitte & Touche's "unqualified" audit reports for the Southern Company during the racketeering period (from 2011 to 2021) was materially false and misleading.

As we first reported on December 26, 2021, the Southern Company and Alabama Power paid Matrix, LLC, a Montgomery, Alabama-based public relations firm, and its owner, Joe Perkins, $2.5 million from January 1, 2018, to July 31, 2019, to carry out a lot of their racketeering activities.

During the course of a nearly two-decade racketeering enterprise, Matrix and Perkins were paid tens of millions of dollars, all “without invoicing.”

During this period, the Southern Company, Alabama Power Company, and Georgia Power Company used Matrix and Joe Perkins as their special breed of well-fed, zealously protected, vicious, Pit bulls. From time to time, these utility companies would let Matrix and Perkins out of their kennels and direct them to maul critics, political adversaries, and anybody else who posed a real or perceived threat to their (a) monopoly in electrical power generation and (b) longtime suppression of effective regulatory oversight.

The major goals of the racketeering enterprise were publicly disclosed for the first time in litigation by former Matrix CEO Jeff Pitts against Joe Perkins in a Florida court. The goals were to: (a) target, influence, compromise, corrupt, control, and/or destroy individuals and entities that posed a perceived or real threat to Alabama Power Company’s monopoly in Alabama as an energy producer and provider, (b) perpetuate Alabama Power’s ironclad control of local, state, and federal elected and appointed officials in Alabama, and (c) protect, expand, and solidify its grip on the political affairs in the state of Alabama.

The racketeering goals and implementation activities were later rolled out in Georgia, Mississippi, Tennessee, Illinois, and Virginia.

Often, the payments to Matrix/Perkins were spread across multiple Southern Company affiliates to evade detection in an external audit. They were purportedly authorized under secret contracts and special work orders. On many occasions, these payments were laundered through third-party vendors and affiliated industry groups.

It does not appear that Deloitte & Touche audited the payments to Matrix/Perkins. As such, the racketeering activities described by Jeff Pitts flourished for many years.

The Southern Company Perfected the Audit Evasion Schemes Pioneered By HealthSouth

HealthSouth’s $2.7 billion accounting fraud scheme ran undetected for six years in the late 1990s and early 2000s because senior management executives learned Ernst & Young’s auditing system and devised creative ways the evade detection while carrying out their accounting fraud scheme.

Ernst & Young eventually paid HealthSouth shareholders $109 million for failing to detect the accounting fraud scheme at the company.

Senior management executives at the Southern Company appear to have perfected the auditing evasion schemes that were pioneered by the HealthSouth executives. They were able to avoid detection by (a) using a payment system that did not require invoicing, (b) laundering payments to Matrix/Perkins through third-party vendors and other affiliated parties, and (c) fabricating special work orders as a cover to make payments for racketeering conduct and activities.

Payment for legitimate services rendered by qualified and capable vendors do not require these external auditing evasion schemes.

Could Deloitte & Touche have discovered the existence of the Southern Company's long running multi-state racketeering enterprise by requiring documentation for Matrix's/Perkins' multi-million dollar contracts? Yes.

Did Deloitte & Touche ever match contract "deliverables" to the actual payments Alabama Power/Southern Company/ George Power made to Matrix/Perkins, without invoicing, under their secret contracts? It does not appear that they did.

Did Southern Company executives distract Deloitte & Touche auditors from looking into the racketeering payments to Matrix/Perkins that were disguised as payments for special work orders and mega expense reimbursements? It appears so.

Did Deloitte & Touche ever report the Southern Company's financial irregularities to the U.S. Securities and Exchange Commission and/or the U.S. Department of Justice? It does not appear that they did.


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