July 22, 2018

Six KPMG Employees Fired After Leak of PCAOB Inspection Info

kpmg auditors pcaob partners conspiracy

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]

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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]