I expect the auditor was asking for password hashes, although he was using the phrase "plaintext passwords". Who knows, but that part of the story may just be a wording misunderstanding.
Not everyone speaks geek, and it's important to know when you're talking to someone who does not ;)
Edit: Not sure why this is being down voted as it is a true statement. I've had to explain what a password hash is on several occasions. And even after that, there was still some misunderstanding/confusion.