December 15, 2018

KPMG Adds Retired Four-Star Air Force General to Its One-Star Board of Directors

No, it wasn’t Pope Francis, Malala Yousafzai, or the ghost of Nelson Mandela, as Caleb suggested last April, but KPMG U.S. on Oct. 4 appointed retired Air Force General Janet Wolfenbarger as the firm’s first independent director to its board, nearly nine months after five former KPMG executives were indicted for their roles in an embarrassing accounting scandal that happened under the board’s and Chairman and CEO Lynne Doughtie’s watch.

Retired Gen. Janet Wolfenbarger

KPMG said additional independent directors will be named in the coming months.

In a press release, KPMG said Wolfenbarger brings to the board “the highest degree of integrity, respect and service,” and boy, does KPMG and its board need that:

Having retired in 2015, after 35 years as a decorated and respected military officer, Janet is the United States Air Force’s first four-star female general. Prior to her retirement, she was inducted into the Order of the Sword, which, according to an Air Force news release is “the highest honor the enlisted force can bestow upon an individual for their conspicuous and significant contributions to the welfare and prestige of the enlisted force, to mission effectiveness, and to the overall military establishment.” With an extremely impressive background, Janet brings unique insights on management, leadership and the uses of technology and innovative solutions that will diversify KPMG’s current Board conversations and perspectives.

We knew this was coming. In a long, fluffy, “KPMG is awesome” article published by Accounting Today last May, Doughtie wrote that the firm is “embarking on the important process of adding outside directors to our board.” Why?

In 2017, certain events, and the actions of a few former colleagues, caused us to take a deeper dive into examining our culture and values, and to assess with fresh eyes how we could improve and best position our more than 100 year-old firm for future success. What has emerged from that ongoing exercise is not surprising. We have been reminded of the cardinal rule in our business, namely that trust is paramount and, as such, must inform all that we do.

Yeah, a massive scandal that made a mockery of your firm will cause you to, I don’t know, do whatever it takes to make sure it never happens again.

Five former KPMG executives were indicted in late January on fraud and conspiracy charges for allegedly obtaining leaked information from Public Company Accounting Oversight Board inspectors—two of whom KPMG actually wound up hiring—to help improve the firm’s dismal inspection results.

The cheating scandal went down from about May 2015 until February 2017 when KPMG finally caught wind that this was going on.

Former PCAOB inspector Jeffrey Wada, who wanted a job at KPMG, and Cynthia Holder, who inspected KPMG for the PCAOB before joining the firm as an executive director, were each indicted on charges of conspiracy to defraud, conspiracy to commit wire fraud, and two counts of wire fraud.

Three former KPMG executives—David Middendorf, national managing partner for audit quality and professional practice; Thomas Whittle, national partner-in-charge for inspections; and David Britt, co-leader of KPMG’s Banking and Capital Markets Group—face similar conspiracy charges as Holder and Wada, as well as three counts of wire fraud.

A sixth participant in the alleged scheme, Brian Sweet, a former PCAOB associate director and former partner at KPMG, pled guilty to conspiracy and wire fraud charges shortly after he was arrested in January.

Because this complete embarrassment and public relations nightmare happened under Doughtie’s and the board’s noses, some action had to be taken. She wrote:

With this public responsibility in mind, we continue to take a hard look at our firm and its governance — and its deep connection to fostering and maintaining trust and effective enterprise risk management — and believe that not everything that has worked for the past 100 years will continue to work for the next 100. We will have to do some things differently and, among other actions, believe that our governance will benefit immensely from the addition of outside directors to our board.

Having a proven leader like Wolfenbarger on KPMG’s board will only help improve the firm’s tarnished reputation, because the KPMG brand—both in the U.S. and around the world—is a hot mess right now.

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SHOCKER: Doesn’t Appear that Stanford Auditors were Doing Any Auditing

allen-stanford_1018295c.jpgLast week’s indictment of Allen Stanford has brought up the always popular question when fraud, occurs: “Who are the auditors that were asleep at the wheel of this disaster?”
Well, in this case, the auditors were a local UK two-person shop, CAS Hewlett, which must be Queen’s English for Friehling & Horowitz.
It doesn’t appear that CAS Hewlett has a website, but they’ve been doing the Stanford “audits” for at least 10 years, so obv they’re legit. PwC and KPMG both have offices on Antigua but Stanford preferred to stay with its “trusted firm”. Totally understandable.
And the best part? The founder of the firm, Charlesworth “Shelly” Hewlett died in January, approximately a month before the story broke on the Ponz de Stanford.
This all adds up to who-the-fuck-knows if audits were even occurring and for us to speculate if Shelly needed to get got because Stan knew that the poo and fan were coming together. Just sayin’.

PCAOB: The Rodney Dangerfield of Bureaucracies

pcaob.gif It’s tough being part of a bureaucracy, especially if you’re doing something as glamarous as babysitting auditors. The CIA, FBI, NSA have got it easy. You get to catch bad guys, use guns, and Hollywood makes movies about you. Aside from the warrantless wiretaps and otherwise general big brotherishness, it’s cool.
The PCAOB doesn’t get that luxury. They get to poke around auditors’ work and then tell them how much they suck at it. Not so fun for anybody. They also get to write auditing standards. Take the watchdog aspect, multiply it times infinity, and that’s about the amount fun we’re talking about for writing rules on auditing.
But now people are saying they’re too slow in writing these I-already-want-to-kill-myself boring rules? Yep:

“Given how little they’ve accomplished in the standards-setting area, they don’t get a passing grade,” says Lynn Turner, a former chief accountant for the SEC.
Turner says he and a group of investor advocates wrote to the PCAOB in 2004, asking it to improve fraud standards. But the work remains undone, he says.
Bill Gradison, the board member whose term expires in October, calls the criticism fair. “We’ve been much slower than other standards writers,” he says.
By comparison, the International Auditing and Assurance Standards Board, which sets international auditing standards, among other duties, finished revising its own standards in March. The process, which included 37 standards, took about five years

Man, now comparisons to the Europeans. They’re looking for some new blood at the PCAOB though, since Mark Olson is retiring as Chairman and another board member’s term is expiring.
But don’t you go calling them lazy! “the PCAOB is taken seriously by the auditing community and deserves credit for trying. ‘Anyone who says it isn’t is off the wall,'”
What a ringing endorsement.

COMPLIANCE WATCH: Oversight Board Sets Sluggish Pace
[WSJ]