• Six KPMG Employees Fired After Leak of PCAOB Inspection Info

    By | April 11, 2017

    Updates to report that individuals were terminated appear throughout.

    Welp, this looks bad. The Wall Street Journal reports that six KPMG employees, including four partners and the firm’s head of audit, have been fired after a PCAOB employee leaked confidential inspection details to the firm.

    The departing KPMG employees include four partners and Scott Marcello, a partner and the head of the firm’s audit practice, according to KPMG. The firm confirmed the matter after being contacted by The Wall Street Journal.

    Mr. Marcello couldn’t immediately be reached for comment.

    How did this happen? The PCAOB is blaming a “disgruntled employee” who leaked information to a KPMG employee who “formerly worked at the accounting board.” A PCAOB spokeswoman said the board “has taken steps to ‘maintain and reinforce the integrity of its inspection process’ since discovering the leak.”

    Accounting Today has more and reports that the KPMG employees who were fired:

    either receiv[ed] advanced notice of which audit engagements were going to be inspected by the Public Company Accounting Oversight Board, or knew that the information had been improperly shared, either of which constitutes a violation of the firm’s Code of Conduct.

    The next part of the AT report is really intriguing:

    According to the firm, an internal source alerted its leadership in early February that a KPMG employee who had previously worked at the PCAOB was getting the confidential information from a PCAOB employee.

    Okay, so humor me on this — Marcello was the Vice Chair of Audit for the firm. If an internal whistleblower “alerted its leadership” about what was going on, it stands to reason that Marcello would’ve been one of the people who was notified. But if he’s now leaving the firm, it suggests that he may have been the first to know and then acted inappropriately or he was getting fed the information from the other people in this little leak circle and did nothing about it.

    A KPMG spokesman declined to comment on this. In either scenario, if the head of audit has to leave, it doesn’t look good.

    In statement to the Journal, KPMG CEO Lynne Doughtie said, “KPMG has zero-tolerance for such unethical behavior. KPMG is committed to the highest standards of professionalism, integrity and quality, and we are dedicated to the capital markets we serve. We are taking additional steps to ensure that such a situation should not happen again.”

    Update, April 12, 2017: As this story developed, KPMG began clarifying earlier reports that the employees in question had resigned. Spokesman Manuel Goncalves told CFO that KPMG “discovered the issue and our regulators — the PCAOB and the [Securities and Exchange Commission] — were immediately informed.” He also added that the six people involved were “separated” from the firm “They did not resign.”

    [WSJ, AT, CFO]

    • Big4Veteran

      Did the disgruntled employee at the PCAOB leak the correct info to KPMG? If yes, then he still didn’t fuck up as bad as PWC fucked up the Oscars.

      But seriously… what did the KPMG people do wrong here? I don’t get it. I know I’m slow sometimes. I see where the PCAOB guy fucked up.

      • Kojones

        PCAOB Rule 3502, which basically calls into play all sorts of other rules and professional standards regarding ethics. Not sure why it’s hard to see what they did wrong.

        • Big4Veteran

          Ah, the famous “catch all” rule… i.e. we can punish you for anything we think you did wrong that is not explicitly prohibited by the rules.

          • Big4Veteran

            My comment here is not getting enough likes.

            • GAAP Wedge

              I got you

      • Christopher Royalty

        I am so confused too. Only thing I can guess is they were expected to declare the leak immediately and didn’t do so? But there is going to be more to this story for sure if the Vice Chair of Audit was axed as a result.

        • Commando

          Most likely explanation is that the head of audit leaked the information he received to the engagement teams.

          • Caleb Newquist

            That explanation doesn’t make sense because the person who received the leaked info was a former PCAOB employee. Marcello, as far as I can tell, has been with the firm his entire career.

            • Commando

              the person who received the info passed it up the chain to Marcello, who distributed it to the engagement teams. That is the only explanation that makes sense.

            • Big4Veteran

              Even if that is all true, where is the crime here? There’s more we do not know.

      • keepin_it_real

        My guess is VC of Audit received inside info on PCAOB inspections and didn’t report to the Board or KPMG legal that there was a leak at the PCAOB. Had he reported that he had inside info on inspections he probably would’ve been given an award for being such a stand up guy and KPMG could’ve trumpeted how ethical they were.

        • Big4Veteran

          I still don’t understand why being the recipient of leaked information is KPMG’s fault. It is the PCAOB’s job to prevent leaks by the PCAOB. The PCAOB clearly fucked up. I don’t see what KPMG did wrong.

          I’m not just trolling here, although I am GC’s #1 troll (proudly). I’m seriously confused by this.

          To summarize… Six HIGH UP people at KPMG got fired for not “doing the right thing(?)” after receiving leaked information. Meanwhile, a HIGH UP PwC partner completely fucks up a layup live in front of 100 million people and he keeps his job.

          • keepin_it_real

            Maybe the VC and other partners knew and acted on that information while also not reporting the leak. My guess is the PCAOB already dealt with their person leaking info but no one gives a shit about the PCAOB.

          • Frank

            if you receive a leak/tip on a public company about earnings – do you trade on it? if not, no harm, no foul. if you do trade on it, and the SEC finds out …

            probably similar standard was applied here when looking at behavior. probably “secretly” used the info to prep a review?

            If not … well … we all know what kinda firm uncle peat runs.

            • Big4Veteran

              Is this a joke? If not, then it is an incredibly stupid comment.

            • Frank

              It’s 100% what happened and makes sense based on what’s been disclosed. Why don’t you get it?

          • Commando

            You are right, the crime would be doing something with the information. And I suspect that is exactly what happened. The engagement teams got a heads up.

            • Big4Veteran

              If that’s what happened, then yes. There should be disciplinary action. But all we currently know (unless I’m missing something) is that leaked information was obtained. Nothing has been reported on what KPMG did with that leaked information, IF ANYTHING.

          • Karen

            You know why – the government. “The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports.”

        • Commando

          My guess is it is worse than that. He did pass on the information to the engagement teams and they sanitized the work papers before the PCAOB arrived.

          • Big4Veteran

            “guess”

        • Caleb Newquist

          Marcello didn’t receive the leaked info. It was a KPMG employee who had previously worked at the PCAOB. This suggests that Marcello and Middendorf got the info and acted inappropriately.

          • Champagne of auditors

            Marcello and Middendorf are 2 of the KPMG folks, who else? Who was the leaker?

          • Big4Veteran

            Then why not report on what they did that was improper? I don’t see how just receiving leaked info is improper.

      • Frank

        Ever had a job picked for review? I’m guessing not. Knowing a job has been picked (if it’s not obvious) X period of time of an official announcement would be a huge benefit. Of course, it also implies that a team (or partner) would do improper things to mitigate deficiencies ahead of the review … but partners never do shady shit like that, do they.

        • Big4Veteran

          Yes, I did have a job picked for review. And yes, it would’ve been a great benefit to have known it was coming sooner. And if that was all that happened, then I don’t think I would’ve done anything wrong. There is nothing wrong with receiving leaked information.

          If I then went and modified my workpapers or something, then that would be a violation of firm policy, the rules and also unethical. But I’m not aware of that being alleged or reported here, unless I’m missing something.

    • larrybirdman

      I’m hearing Marcello was romantically involved with the PCAOB employee. They were discovered at a motel 6 in jersey on the run together

      • Big4Veteran

        I still don’t see what the KPMG people did wrong here. PCAOB guy? Sure.

        • WRD

          You’re right. There’s something else here that seems suspicious.

        • Commando

          They likely passed on the information and then cleaned up the working papers.

          • Big4Veteran

            Is that what happened, or are you speculating?

            • larrybirdman

              Are you questioning my integrity? I would never say anything false on the internet

    • SouthernCPA

      My guess is that the employees did something with the info – used it to clean up workpapers, etc. I don’t know how long the normal lead time is between PCAOB identifying a job and asking everything to be handed over. But if this gave them time to sanitize, and they did so, then that explains the firings.

      My guess is we don’t know that because KPMG at this point is not going to tell us that. It’s a HR issue and they will have no comment.

      Now, if something occured that will involve a public hearing and a fine/censure by PCAOB, SEC, or a criminal issue, we will hear all about it.