The KPMG cheating scandal has come back to bite the Big Four audit firm yet again in the form of a $1.3 million penalty handed down by the state of California and its Board of Accountancy (CBA) on Monday.

The fine, agreed to in a stipulated settlement, arose from KPMG’s admissions to allegations brought by the Securities and Exchange Commission in a $50 million settlement reached in June 2019. The SEC had charged KPMG with altering audit information after illegally obtaining inspection results from the Public Company Accounting Oversight Board (PCAOB), in addition to finding KPMG audit professionals had been cheating and sharing answers on internal training exams.

Many of the audit professionals involved in the exam cheating are or were based in California, the CBA noted. David Britt and Brian Sweet, two of the individuals central to the PCAOB scandal, were licensed by the CBA, and the scheme was executed through PCAOB personnel in California, including Jeffrey Wada.

“Integrity is at the core of the accounting profession,” said California Attorney General Xavier Becerra in a press release. “Public company audits are particularly important because they provide oversight of businesses that Americans rely on to invest their hard-earned money in pensions and other retirement funds. When companies like KPMG choose to cheat rather than improve the company’s practices, it undermines the whole system. They will be held accountable.”

In addition to the fine, KPMG was placed on probation for three years, during which time it will continue to be able to serve clients in the state. The firm must submit written reports on its compliance with the CBA’s orders each quarter during the probation period. The audit firm must also develop coursework on the subject of ethics that must be made available to all California CPAs at no cost. All of KPMG’s California-licensed personnel must complete the course in addition to their standard continuing education requirements.

“This term requires KPMG to demonstrate a strong recognition regarding the misconduct, and a commitment to advancing the CBA’s mission of consumer protection by reinforcing the importance of ethics in the accounting profession,” CBA President Nancy Corrigan stated.

“KPMG is a stronger firm today as a result of the concrete actions we have taken to strengthen our culture, governance, and compliance program since 2017,” the firm said in a statement. “Integrity and quality are paramount to everything we do. We look forward to partnering with the state of California on ethics and integrity training for all CPAs in the state.”

In the aftermath of the scandal, two of the individuals involved from KPMG have been sentenced to prison and one, Britt, to home confinement. The next sentencing related to the case—for ex-KPMG Partner Thomas Whittle—is set to be held Dec. 2.

Kyle Brasseur is managing editor—digital for Compliance Week, leading the day-to-day web-related tasks of the editorial team while also handling social media and user analytics.

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