The SEC called them unacceptable and astonishing. Now, KPMG gets to call them old news. We’re talking, of course, about the SEC’s allegations that former KPMG employees used stolen information to clean up past audit work. Now, the Big Four accounting firm has agreed to a pricey $50 million penalty to settle the charges and, it hopes, put the episode behind it.
The SEC first brought the matter to light 18 months ago, when it alleged that former staffers of the Public Company Accounting Oversight Board (PCAOB) and ex-KPMG employees orchestrated a scheme from 2015 to 2017 to tip off the firm about the PCAOB’s inspections of KPMG’s audit work. According to the SEC, in 2016 senior officials in KPMG’s national office coordinated an effort to review and revise audit workpapers based on their knowledge of the PCAOB’s plans. As a result, KPMG saw “substantial” improvement in its audit inspections that year, an area of emphasis for the firm after receiving lackluster marks in the past. A similar plan was in motion in 2017, but other KPMG employees discovered the scheme and informed the firm’s leadership.
Additionally, the SEC said it discovered instances of hanky panky related to KPMG’s continuing education program. According to the Commission, auditors shared answers to training exams with their colleagues to help them pass the tests and fiddled with an internal KPMG server to lower the score required to pass the exams.
KPMG admitted to the facts as described by the SEC. In addition to the fine, the firm agreed to continue investigating training malfeasance and give its ethics and integrity controls a fresh look. KPMG has to retain an independent consultant to review the results of the inquiries, per the SEC’s order. Notably, the SEC is not quite prepared to close the book on this matter, as the investigation is ongoing.
“High-quality financial statements prepared and reviewed in accordance with applicable accounting principles and professional standards are the bedrock of our capital markets. KPMG’s ethical failures are simply unacceptable,” said Jay Clayton, chairman of the SEC. Clayton added that the settlement “holds KPMG accountable for its past failures and provides for continuing, heightened oversight to protect our markets and our investors.”
The latest news about KPMG comes as politicians on Capitol Hill are considering a slew of legislative proposals related to the SEC and PCAOB. A June 19 hearing of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets included testimony from academics and lawyers on a series of measures intended to beef up securities law enforcement. No less than three proposals from Democratic lawmakers would affect the PCAOB, such as the creation of a whistleblower program at the organization.
However, KPMG’s $50 million fine may spur some changes at the Big Four before Congress even has a chance to act.