Auditing giant KPMG will pay $50 million to the Securities and Exchange Commission to settle charges that employees allegedly used stolen data and cheated on training exams.
KPMG allegedly altered past audit work based on stolen information about upcoming inspections by the Public Company Accounting Oversight Board, according to a statement Monday from the SEC. Audit professionals at KPMG also cheated on internal training exams by either sharing answers or changing final test scores, the regulator alleged.
“This conduct was particularly troubling because of the unique position of trust that audit professionals hold,” Stephanie Avakian, co-director of the SEC’s enforcement division, said in the statement. “Investors and other market professionals rely on these gatekeepers to fulfill a critical role in our capital markets.”
Under the settlement, KPMG has agreed to identify auditors who violated ethics requirements in training examinations in the past three years and hire an independent consultant to evaluate the firm’s ethics and quality controls.
“Integrity and quality remain our focus, as always,” a KPMG spokesperson said Monday in an email. “The foundation of our role as auditors and advisors is trust. We have learned important lessons through this experience and we are a stronger firm as a result of the actions we are taking to strengthen our culture, our governance and our compliance program.”
In 2014, the Public Company Accounting Oversight Board issued a reporting saying that KPMG had a 46 percent deficiency rate in 2013, meaning that 23 of 50 audits inspected had missing elements, according to the SEC’s order, also released Monday.
To improve its results, KPMG hired Brian Sweet, an associate director at PCAOB who had helped inspect the firm, according to the order. Sweet allegedly transferred the board’s inspection planning materials to his own personal computer before leaving PCAOB. He, along with others at KPMG, then used the planning materials to improve inspection results, the SEC said.
In January 2018, the SEC charged Sweet and others with using the leaked data to improve scores. Sweet settled with the SEC, agreeing to be barred from practicing as an accountant.
The SEC also found that some KPMG audit professionals who passed their internal exams allegedly sent images of their answers to fellow employees to help them succeed, according to Monday’s statement. Others allegedly manipulated an internal server hosting system to lower the score required for passing, with some allegedly achieving passing scores despite providing correct answers for less than 25 percent of exam questions, according to the SEC.
“High-quality financial statements prepared and reviewed in accordance with applicable accounting principles and professional standards are the bedrock of our capital markets,” SEC Chairman Jay Clayton in Monday's statement. “KPMG’s ethical failures are simply unacceptable.”
The SEC said KPMG admits to the facts in the order and acknowledges that its conduct violated a PCAOB rule requiring integrity when performing a professional service. The spokesperson for KPMG declined to comment beyond pointing to the order.