Price, Water-house Pays

The late F. Donald Coster (Philip Musica) of McKesson & Robbins always took a close personal interest in his auditors, Price, Waterhouse & Co. He first hired the firm in 1925; used their audits to get respectable banker backing; always saw that the sales and inventory records (i.e., pieces of paper) of his fictitious crude drug department were in A-1 shape.

When the truth about the crude drug fantasy was first announced, a Price, Waterhouse man exclaimed, "Why, that's the best-run department in the business." Wrote Coster to Price, Waterhouse in 1936: ". . . Only in auditing [has] our company really got its money's worth." During the two years since McKesson's receivership and Coster's suicide, McKesson (under Trustee William Jed Wardall) has made gradual progress toward reorganization. One of Trustee Wardall's jobs is to recover assets; one source of recoveries was Coster's board of directors, who gave him enough votes of confidence to expose themselves to charges of negligence. To date, Trustee Wardall has negotiated out-of-court settlements with 20 of 22 directors. Their contribution to the new McKesson: 10,252 shares of preference stock (worth about $285,000 on the market), 19,930 shares of common (worth about $80,000).

Meanwhile there was Price, Waterhouse. Over them the trustee held two clubs: 1) possible recovery from a negligence suit, 2) such a suit's publicity. To a negligence suit, Price, Waterhouse might have made an air-tight technical defense. They had been given full, if bogus, documentation for everything they certified. There was not the remotest question of complicity. Said Price, Waterhouse to Wardall: "We were victims of the same fraud. . . ."

Last week, in spite of all, Price, Waterhouse came to terms with the trustee. Of their $1,000,000-plus fees from the old McKesson, they offered to repay $522,402.29--the total of their fees from 1933 to Coster's suicide. Mr. Wardall submitted the proposal to the court, expected approval this week. Price, Waterhouse, meanwhile, whose auditing standards have been more rigid since Coster's death, prepared to send the bill for most of the $522,000 to their insurers, Lloyds.

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