A bit of embarrassing news for KPMG from Down Under: the PCAOB has fined the firm’s Australia affiliate $450,000 for a cheating scandal among more than 1,100 employees there, two years after regulators sanctioned KPMG’s U.S. offices for essentially the same offense.
From at least 2016 until early 2020, according to the PCAOB’s settlement order, KPMG Australia failed to implement appropriate policies and procedures for administering and monitoring the training tests that firm personnel had to take — including tests to maintain their professional accounting licenses. Amid that lax climate, more than 1,100 staffers, including more than 250 auditors, shared answers with each other to boost their chances of success.
For example, the offending KPMG Australia employees often shared answers by email, attaching documents containing answers to training test questions. Some people also shared answers via text or instant messages, and by saving the answers to test questions on a shared server. Some apparently even spoke the answers aloud while taking tests in groups. (Good grief. My friends and I knew that tactic wouldn’t work by third grade.)
Moreover, this cheating scandal was pervasive. The KPMG Australia ended up punishing roughly 12 percent of its total workforce, and “improper sharing of training test answers occurred at all levels of the firm,” the PCAOB said.
If all this sounds familiar, that’s because the Securities and Exchange Commission whacked KPMG US with a $50 million fine in 2019 for multiple misconduct scandals, including employees cheating on CPE exams.
The U.S. scandal does seem more egregious than what transpired in Australia. For example, U.S. employees were cheating on tests that had been ordered as part of a previous settlement with the SEC; and some offenders manipulated computer servers and HTML code to lower the threshold for passing the tests. Nothing like that is alleged in the PCAOB sanction against KPMG Australia.
One also can’t help but wonder about the timing of these cases. KPMG U.S. had been in hot water with the SEC for other misconduct when the SEC surprised everyone in June 2019 with the cheating scandal. By early 2020, KPMG Australia had self-disclosed its own cheating problems to the PCAOB. Did the U.S. bombshell prompt KPMG Australia to inspect its own house? Will we see other affiliates confess to their own cheating scandals? That’s unclear.
Taking Ownership of Its Mess
The PCAOB did credit KPMG Australia with “extraordinary cooperation” once the cheating scandal was reported. Among the remedial actions the firm took:
- Voluntarily self-reported the matter to PCAOB within 15 days of learning about the misconduct.
- Conducting an extensive internal investigation, and then providing the results of that probe to PCAOB staffers — including evidence relating to each of the firm’s interviews of the 1,172 individuals suspected of improper answer sharing.
- Holding frequent calls with PCAOB staff to keep the agency updated.
- Performing a root cause analysis of the underlying misconduct.
- Requiring personnel to re-take certain training and testing.
KPMG Australia also took disciplinary action against 1,131 personnel, ranging from forced retirements to verbal warnings.
“Absent the firm’s extraordinary cooperation,” the PCAOB said, “the civil money penalty imposed would have been significantly larger, and the board may have imposed additional sanctions.”
KPMG Australia itself neither admits nor denies any of the findings in the PCAOB settlement order, and has not published a statement about the sanction. Still, it looks like KPMG Australia saw what happened to its U.S. brethren when they were caught in a cheating scandal, and decided self-flagellation was the better part of valor. That’s better than a kick up the backside.