The KPMG cheating scandal was much more widespread than originally thought

https://www.marketwatch.com/story/the-kpmg-cheating-scandal-was-much-more-widespread-than-originally-thought-2019-06-18?mod=francine-mckenna

The KPMG cheating scandal was much more widespread than originally thought

Published: June 18, 2019 5:03 p.m. ET

By
Francine
McKenna

Reporter

A $50 million fine against KPMG LLP for its use of stolen regulatory information to cheat on audit inspections wasn’t a surprise: The Wall Street Journal warned last week that the Securities and Exchange Commission was ready to impose such a move, and the scandal had been known about for more than a year.

The record fine was a solid jab but no knockout punch. But then came a left hook out of nowhere.

The SEC revealed Monday a much larger scandal than was previously known: KPMG auditors, including some senior partners in charge of public company audits, cheated on internal tests related to mandatory ethics, integrity and compliance training, sharing answers with other partners and staff to help them also attain passing scores. In addition, for a period of time up to November 2015, some audit professionals, including one partner, manipulated the system for their exams to lower the scores required to pass.

Twenty-eight of these auditors did so on four or more occasions. Certain audit professionals lowered the required score to the point of passing exams while answering less than 25% of the questions correctly, the SEC says.
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Five former KPMG officials — including its former national managing partner for audit quality and professional practice — and one former PCAOB official were charged last year in a case that alleged they schemed to interfere with the PCAOB’s ability to detect audit deficiencies at KPMG. The SEC said the senior KPMG partners sought and obtained confidential PCAOB lists of inspection targets and then led a program to review and revise certain audit work papers after the audit reports had been issued in order to reduce the likelihood of deficiencies being found during inspections. Three have pleaded guilty, two were found guilty and one is still pending trial.

The SEC’s order says KPMG must “cease and desist” violating the securities laws and is required to evaluate its quality controls relating to ethics and integrity and identify audit professionals that violated ethics and integrity requirements in connection with training examinations within the past three years. KPMG must also hire an independent consultant to review and assess the firm’s ethics and integrity controls and its investigation of the cheating scandal.

KPMG admitted the SEC’s allegations. Calls to KPMG for comment were not returned.
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The test cheating related to a variety of subjects relevant to the professionals’ audit practices, including additional training required by a 2017 SEC enforcement action that charged KPMG with engaging in improper professional conduct in the audit of the financial statements of an oil and gas client that caused reporting violations. As part of the settlement, the SEC ordered KPMG to ensure its audit staff complete specific training programs in various technical accounting areas and to cough up the audit fees it earned plus interest of $5.1 million.
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