February 7, 2014 — The investing public has a right to trust that an audit performed by one of the country’s major accounting firms is unbiased. When accounting firms have an improper financial interest in the companies they audit, however, objectivity is not possible. To redress this problem and others that affect the quality of information available to investors, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 set up a whistleblower program concerning financial fraud cases. Informants who collaborate with the U.S. Securities and Exchange Commission (SEC) about violations of auditor independence rules may be handsomely rewarded for their willingness to notify the government.
KPMG Allegedly Provided Bookkeeping and Other Services to Affiliates of Audit Clients
KPMG has been charged with violating auditor independence rules requiring auditors to maintain independence from publicly trading businesses they are auditing. KPMG allegedly provided forbidden non-audit services to affiliates of the firm’s audit clients. In addition, some KPMG employees owned stock in KPMG audit clients, or their affiliates. Such practices prevent a public accounting firm like KPMG from maintaining impartiality during the audit process. The firm will pay $8.2 million to resolve the SEC’s charges.
Between 2007 and 2011, the SEC has alleged, KPMG represented its independence in repeated audit reports even though it provided non-audit services to three audit clients that interfered with KPMG’s professed independence. KPMG allegedly provided the affiliate of one its audit clients with several non-audit services, such as corporate finance, restructuring and expert services. KPMG provided affiliates of another audit client with non-audit services, including payroll and bookkeeping. Regarding a third audit client, KPMG hired a senior level employee from the client’s affiliate and then loaned the employee back to do the precise work he had been doing when he was employed there. This process resulted in a professional with KPMG acting as a manager for the audit client, in violation of the Securities Exchange Act of 1934.
KPMG neither admitted nor denied the SEC’s findings, but will pay over $5 million in disgorgement of fees from the three audit clients, plus $1.185 million in prejudgment interest. In addition the accounting firm will pay a penalty of $1.775 million.
Whistleblowers Collaborate with SEC about Auditor Independence Misconduct
Insider employees with firsthand knowledge of auditor independence misconduct should learn their rights before stepping forward. The SEC fraud lawyers at Waters & Kraus are devoted to safeguarding whistleblowers’ interests when they notify the government about accountant firm misconduct. Contact us or call our securities fraud lawyers at 855.784.0268 to discuss how we can assist you.
