KPMG’s former head of auditing in the US was fined $100,000 and reprimanded by the country’s accounting regulator for failing to oversee colleagues who received illegal tips affecting the firm’s results to improve official inspections.
Scott Marcello was fired as KPMG’s audit vice chairman in 2017 after the Big Four professional services firm found that some of its employees had been improperly warned in advance about audits the regulator wanted to review.
Regulators found that KPMG’s auditors had used the information to “improve” audit documents to improve the firm’s results on inspections.
Five other partners and employees of KPMG were also fired over the affair, including David Middendorf, the former head of the practice department who was later sentenced to a year and a day in prison for his involvement in the program.
Middendorf reported directly to Marcello, the Public Company Accounting Oversight Board said. Several of his former colleagues have been charged or pleaded guilty in US criminal cases.
The regulator said on Tuesday that the fine imposed on Marcello was the largest ever imposed as part of a settlement against an individual.
Marcello’s case is the first in which the board has sanctioned an accountant for failing to adequately supervise colleagues who have violated professional standards or accounting rules, using powers under the US Sarbanes-Oxley Act . Marcello has neither admitted nor denied the accounting supervisor’s findings.
“Tuesday’s disciplinary action demonstrates that the PCAOB is committed to sanctioning senior employees of the largest firms when they fail to take adequate supervisory action to prevent violations by their subordinates,” said Erica Williams, Chair of the PCAOB.
It is important to hold Marcello accountable as the boss of the perpetrators “because he contributed to a culture that led to this serious wrongdoing,” she said.
The Marcello Settlement is the latest significant enforcement action by the PCAOB since a shake-up last year. The board had been criticized for becoming toothless under the Trump administration, which was contemplating abolition.
The inspection leaks hurt not only KPMG, but also the PCAOB, as the notices were submitted between 2015 and 2017 after the accounting firm hired regulator staff. Some were directly involved in the wrongdoing.
Jeffrey Wada, a former PCAOB inspector, was sentenced to nine months in prison in 2019 for telling KPMG about the revision inspections in advance.
In 2019, KPMG reached a $50 million settlement with the Securities and Exchange Commission fees This included altering previous exam papers after receiving the information stolen from the PCAOB.
Officers involved in the program sought and used the information because KPMG “had found a high rate of audit deficiencies in previous inspections and improvement had become a priority,” the SEC noted.
KPMG said it was “a stronger company as a result of actions taken since 2017 to strengthen our culture, our governance and our compliance program.”
“Integrity and quality are of paramount importance to KPMG, including working with the utmost regard for the critical importance of the regulatory process to our profession,” it added.
https://www.ft.com/content/b4f49fc8-68da-4470-ab5d-adff68cfe2e9 US watchdog fines ex-KPMG audit chief $100,000 over tip-off scandal