SEC says $ 50 million fine for KPMG is "important" and "appropriate" for all cheating

The SEC officially announced today that Dave Michaels of the the Wall Street newspaper Last week, KPMG announced that KPMG would pay $ 50 million to settle charges that former partners "stole the test" by using confidential information provided by a PCAOB insider to improve the company's performance during public audits.

Yes, Cole Sprouse is over! The SEC has accused KPMG of two separate cases of misconduct "that have resulted in a violation of the basic requirement that auditors must act with integrity", in accordance with the ordinance of execution. The first is to steal confidential PCAOB inspection information. But there was another cheat happening in the walls of House of Klynveld's offices that the SEC shared on Monday morning:

[B]Therefore, during and after the National Office executives used PCAOB confidential information, KPMG audit professionals – regardless of their seniority level – committed misconduct within the framework of Exams on internally administered training courses intended to verify if they included a variety of accounting principles and other topics of importance.

This misconduct took a variety of forms. KPMG audit professionals exchanged their answers to the exams. A number of audit partners gave answers to other partners during the review. A number of them also sent responses to their subordinates and solicited them. In addition, until November 2015, some audit professionals made unauthorized changes to the KPMG server's instructions, allowing them to manually select the required pbad marks for the tests, which they often reduced to the point of success. exams with less than 25% of the questions were answered correctly. The examinations covered a variety of topics relevant to the candidate's auditing practices and included additional training required by a Commission Order of 2017 after the Commission found that KPMG had engaged in improper professional conduct and caused the rules to be violated. a customer.

Steven Peikin, co-director of law enforcement at the SEC, said during a conference call with reporters this morning that "this situation is extraordinary and warrants an extraordinary response. KPMG admitted the behavior described in the order of the commission today. He will be fined $ 50 million and will be ordered to take significant corrective action to improve his ethics and integrity. "

As part of the "significant corrective action" that the company is required to take, KPMG must:

• Identify auditors who have violated the ethics and integrity requirements of training exams cheated in the last three years. "The firm will badess the adequacy of its training programs to determine whether its culture is conducive to ethical and compliant conduct and that it deploys sufficient resources and monitors compliance with the requirements of ethics and integrity" said Peikin.
• Comply with a cease and desist order.
• Use an independent consultant, not a controller, to review and evaluate the firm's ethics and integrity controls and investigation.

"With regard to the cheating test, KPMG retained the services of an outside law firm to investigate these problems and took appropriate action for the job," said Peikin. "The firm's investigation is overseen by an independent member of KPMG's Board of Directors. The SEC order requires KPMG to complete this investigation by taking the steps reasonably necessary to identify audit professionals who have breached the rules of ethics and integrity relating to training exams administered during the course of the audit. last three years.

"To ensure the robustness of KPMG's process, the order requires the independent consultant to review and evaluate the company's investigation and determine whether the company is taking appropriate employment action or taking other corrective actions. ", he told the press. "The regulation provides that the independent consultant is authorized to make binding recommendations that he considers appropriate regarding the company's investigation, employment actions and corrective measures. Finally, KPMG is responsible for providing additional training on ethics and integrity to its audit staff over the next three years. "

KPMG ignored Going Concern's claims regarding a SEC sanction statement, but this appears to be the comment of the firm circulating on the Internet:

"Integrity and quality remain our priority, as always. Trust is the foundation of our role as auditor and advisor. This experience has allowed us to learn important lessons and we are a stronger company because of the steps we are taking to strengthen our culture, our governance and our compliance program. As we move forward, we are committed to providing the highest quality and fulfilling our important role in the financial markets. "

OK, guys, after knowing all that you already knew about the involvement of KPMG's former executives in the PCAOB inspection cheating scandal, and now this fraud and this manipulation of results by auditors and audit partners during these training reviews, KPMG should pay much more than a $ 50 million fine, right? At the very least, the company should pay twice that amount, which I think is still too low. KPMG should pay the SEC a much heavier fine in addition to all the other bullshit that the SEC is forcing the company to do.

So, at this morning's teleconference, I asked Peikin how the SEC had decided to pay a $ 50 million fine and whether there were plans to impose an extra fine. And his answer was:

"I can not discuss the process with you to arrive at a recommended sanction. I can tell you that we consider a fine of $ 50 million as a significant fine, given the seriousness of the misconduct for the reasons that I have set out, which means that it implied very senior people within the firm, many audit professionals, large scale, and cheating has occurred over a long period. "

Nope. Sorry, I do not agree that the fine was significant or appropriate. KPMG officials were manipulating the regulatory inspection process. Three of his former partners and a former executive director are likely to be in prison. And there is a good chance that a fourth former partner will also be sentenced to prison. Today we discover that auditors were manipulating the results of internal training exams. I mean, read this:

Prior to November 2015, KPMG hosted exams on training programs on an internal server with software provided by a third party. KPMG sent participants to the training programs a hypertext link to the applicable exams. The hyperlink contained an instruction to the server specifying the score needed to pbad the exam. Thus, the characters "MasteryScore = 70" meant that participants had to answer at least 70% of the answers accurately to pbad the exam.

By changing the number listed in the hyperlink, audit professionals can change the score required to succeed. Until November 2015, some audit professionals, including a partner, changed exam URLs to reduce the scores required to succeed. Twenty-eight of these listeners did it four or more times. Some audit professionals lowered the required score to the point of pbading the exams while correctly answering less than 25% of the questions.

Seriously, SEC. You let KPMG win.

Peikin would not say how many KPMG professionals were involved in cheating a training exam, nor would he say whether charges were being laid against people involved in cheating. The investigation is still ongoing.

TL; DR: KPMG literally messed up and cheated and got hit on it. The end.