KPMG Netherlands agreed to pay a record $25 million penalty levied by the U.S. Public Company Accounting Oversight Board (PCAOB) for allegedly allowing widespread cheating by employees on internal training exams and misinforming regulators about the misconduct.

Improper answer sharing occurred at KPMG Netherlands over a five-year period, and the firm made multiple misrepresentations to the PCAOB about its knowledge of the misconduct, the regulator said Wednesday in a press release. The PCAOB conducted a joint investigation into the matter with its Dutch counterpart, the Dutch Authority of the Financial Markets, which placed KPMG Netherlands under enhanced supervision, according to a press release.

The PCAOB also fined the firm’s former head of assurance, Mark Hogeboom, $150,000 for violating a PCAOB rule that prohibits knowingly or recklessly contributing to violations of agency rules. He was censured and permanently barred from being an associated person of a registered public accounting firm.

The cheating scandal was uncovered in a 2022 internal whistleblower report, the PCAOB said, followed in June 2023 by a second whistleblower report.

The details: From 2017-22, hundreds of KPMG professionals, including partners and senior firm leaders, engaged in improper answer sharing, including Hogeboom, the PCAOB alleged in its order. The answer sharing also extended to the firm’s U.K. personnel.

KPMG U.K. was fined $2 million by the PCAOB in December 2022 for alleged exam cheating on internal training tests between the firm and its India-based support entity. In 2019, KPMG was fined $50 million by the Securities and Exchange Commission for misconduct that included employees cheating on internal exams.

Despite knowing about the exam cheating as far back as June 2020, KPMG Netherlands did not investigate until after receiving the 2022 whistleblower report, the PCAOB said.

The PCAOB said the firm submitted inaccurate information in response to the regulator’s questions and failed to correct it.

The misconduct also “revealed an inappropriate tone at the top of the firm and a failure by firm leadership to effectively promote an ethical culture among firm personnel with respect to improper answer sharing and monitoring of the firm’s system of quality control,” the order said.

Compliance considerations: The PCAOB said KPMG Netherlands’ policies and procedures were “inadequate to prevent or detect the extensive improper answer sharing on training tests that occurred among KPMG Netherlands personnel.”

The PCAOB ordered the firm to implement policies and procedures that include proper monitoring of internal exams for potential cheating and to submit a certification from the chief executive officer of KPMG Netherlands that the changes have been implemented.

The penalty against KPMG Netherlands is the largest in PCAOB history.

“I want to be very clear: The PCAOB will not tolerate exam cheating nor any other unethical behavior, period,” said PCAOB Chair Erica Williams in a statement. “Impaired ethics erode trust and threaten the investor confidence our system relies on. The PCAOB will take action to hold firms accountable when they fail to enforce a culture of honesty and integrity.”

Separately on Wednesday, the PCAOB fined Deloitte a total of $2 million for widespread answer sharing on internal exams by employees in Indonesia and the Philippines. An executive was fined $10,000 and barred from being an associated person of a registered public accounting firm for at least three years for his alleged role in the scheme.

KPMG response: “The conclusions are damning, and the penalty is a reflection of that. I deeply regret that this misconduct happened in our firm,” said Stephanie Hottenhuis, CEO of KPMG Netherlands, in a statement. “Our clients and stakeholders deserve our apologies. They count on our quality and integrity as this is our role in society, with trust as our license to operate.”

The statement went on to say employees at all levels within the firm were sanctioned for their roles in the sharing of exam answers. Some left the company.

Deloitte response: “Answer sharing on learning assessments is unacceptable and a breach of our ethical code of conduct,” said a Deloitte spokesperson in an emailed statement. “Deloitte Philippines and Deloitte Indonesia self-reported these matters to the PCAOB, implemented comprehensive corrective actions, and continue to serve clients with high quality and in accordance with applicable professional standards.”