US regulator raps KPMG over exam cheating

The Securities and Exchange Commission (SEC) has settled charges against three former audit partners at KPMG’s US firm related to an exam cheating scandal

Details of the exam wrongdoing emerged as part of an SEC investigation into claims KPMG had altered past audit work after receiving stolen information about inspections that would be conducted by the Public Company Accounting Oversight Board (PCAOB).

This also found that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results.

The US regulator said former KPMG audit partners Timothy Daly, Michael Bellach, and John Donovan each engaged in misconduct in connection with exams KPMG administered to test whether its audit professionals understood certain accounting and auditing principles.

In October 2018, at Daly’s request, Bellach texted Daly images of the questions and answers to a required training examination.

After KPMG began investigating possible cheating by its professionals and required strict compliance with a document preservation notice sent to all KPMG personnel, Daly deleted the text messages from Bellach and falsely told KPMG investigators he had not received any answers to KPMG training exams.

Daly also encouraged Bellach to delete the text messages as well, which Bellach did after receiving KPMG’s document preservation notice.

The SEC said Donovan also supported the sharing of exams and answers within his team and that between April and September 2018, he received answers to training exams from subordinates on several occasions, and shared answers with his team three times. Donovan also falsely told KPMG investigators that he had not sent, received, or shared answers.

Daly, Bellach, and Donovan agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies, with the right to apply for reinstatement after three years, two years, and one year, respectively.

Last June KPMG agreed to settle the charges relating to the stolen PCAOB information and the exam cheating by paying a $50m penalty and complying with a detailed set of undertakings, including retaining an independent consultant to review and assess the firm’s ethics and integrity controls and its compliance with various undertakings.

Steven Peikin, co-director of the SEC's division of enforcement, said: ‘Audit professionals play a critical role in the integrity of the financial reporting process and the protection of investors.

‘These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.’

A KPMG spokesperson said: ’We are a stronger firm as a result of the actions we are taking to strengthen our culture, governance and compliance program.’

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