In this episode Matt Kelly and I take a deep dive into the absolutely stunning indictments of five former partners or employees of KPMG and one former employee at the Public Company Oversight Accounting Board (PCAOB). Last spring, KPMG dismissed the following: David Middendorf, KPMG’s then-national managing partner for audit quality and professional practice, Thomas Whittle, KPMG’s then-national partner-in-charge for inspections and David Britt, KPMG’s banking and capital markets group for lured the following former professionals from the PCAOB: Brian Sweet, Cynthia Holder and Jeffrey Wada, all certified public accountants with promises of jobs at the accounting firm in exchange for stolen information. Sweet did not make the cut was not hired.
Apparently these three were offered jobs if they provided KPMG with information on the PCAOB’s planned reviews of certain KMPG audits of specific public companies. The six were charged with conspiracy and wire fraud, alleging they repeatedly used stolen confidential regulator information to subvert KPMG’s regulatory inspection process. Even more troubling is the report that Middendorf, Whittle and Britt pressured Holder and Wada to continue providing the information or their jobs were in jeopardy.
All of these six are now facing criminal indictments. We explore what all of this might mean for KPMG, the PCAOB and the SEC. Can KPMG audits be trusted going forward? What type of culture existed that allowed this type of behavior to occur and continue for over two years before it was internally reported. Who else at KPMG knew or should have known about this conduct? What audits are now suspect? What happens if KPMG is found guilty at trial or accepts a guilty plea? Can it continue to perform audits?
Turning to the PCAOB, does it have a revolving door problem? Should it prevent its professionals from going to auditors? How does it assure such confidential information does not walk about the door? For SEC, what is the appropriate sanction against KPMG given the senior partner involvement? Is the SEC investigating other audit firms?
For more reading see Matt Kelly’s blog post Six Charged in PCAOB Inspections Leak
For additional reading see Francine McKenna’s article in MarketWatch KPMG indictment suggests many who weren’t charged knew regulator data was stolen