Three KPMG firms disciplined in $7.7M enforcement sweep

KPMG’s affiliates in Colombia, the United Kingdom, and India were each fined as part of the enforcement sweep announced Tuesday. KPMG Colombia agreed to pay $4 million, while KPMG UK must pay $2.6 million between two separate disciplinary orders. KPMG India received a $1 million penalty.

Of the four KPMG practitioners disciplined, two were ordered to pay fines that totaled $100,000.

“These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality,” said PCAOB Chair Erica Williams in a press release.

The details: KPMG Colombia received the largest financial penalty after admitting it failed to cooperate with a PCAOB inspection in 2016. The regulator found three employees at the firm improperly altered documentation for two audits and were able to do so because of deficiencies in the firm’s quality control systems regarding documentation and administrative password protection.

José Daniel Meléndez Giménez, the engagement partner for one of the two altered audits, was fined $25,000. The employees he directed to take part in the misconduct—Edgar Mauricio Ramírez Rueda and Marco Alexander Rodríguez Ramírez—were each spared fines because of their financial situations. All three were barred from being associated with a registered public accounting firm—Meléndez for three years, Ramírez for two years, and Rodríguez for one year—and admitted their violations.

KPMG Colombia was also accused by the PCAOB of failing to prevent internal training exam cheating among firm personnel from at least 2016 through 2020. The firm agreed to be supervised by an independent consultant charged with determining the extent of exam cheating among employees and recommending appropriate remedial actions.

Exam cheating was also cited in one of the disciplinary orders against KPMG UK, where “hundreds of individuals” shared answers on internal training tests between the firm and its India-based support entity from 2018 to March 2021.

“The improper answer sharing occurred in connection with tests for training courses covering topics that included auditing, accounting, and professional independence,” said the PCAOB. “All of the professionals implicated in the answer sharing performed work for KPMG UK’s Assurance practice.”

KPMG UK agreed to pay $2 million and improve its quality controls regarding exam integrity to settle the charges.

“I am disappointed that this took place,” said KPMG UK Chief Executive Jon Holt in an emailed statement. “This kind of behavior is unacceptable at KPMG and will not be tolerated. We took the appropriate disciplinary action with all those involved and have since put additional monitoring measures in place. We are building a culture that is based on our values, and I am determined that we work to the highest ethical standards for our clients and the communities we serve.”

The second fine against KPMG UK —for $600,000—addressed allegations of allowing unregistered Romanian audit firm KPMG Audit SRL to play a substantial role in four consecutive audits without properly documenting its participation.

At KPMG India, the firm and one of its engagement partners, Sagar Pravin Lakhani, were accused of quality control failures regarding signing off on blank placeholder work papers during the 2017 audit of a public company.

“The blank work papers were replaced with completed work papers, in many cases after the issuance of the audit report, but the sign-off dates were not updated,” the PCAOB noted. “As a result of this practice, the work papers did not appropriately reflect the dates on which the audit work was actually completed and reviewed. KPMG India was aware that its audit software allowed personnel to modify or update audit documentation without modifying the sign-off date.”

In addition to being fined, KPMG India agreed to enhance its quality control policies and procedures. Lakhani must pay $75,000 and was suspended from associating with a registered public accounting firm for one year.

The alleged failures at the KPMG entities follow a pattern across the firm’s global network. KPMG Australia was fined $450,000 by the PCAOB in 2021 for alleged training test cheating, two years after the firm’s U.S. headquarters agreed to pay $50 million in a settlement with the Securities and Exchange Commission that addressed cheating allegations.

This year, KPMG Canada, KPMG Italy, KPMG Netherlands, and KPMG South Africa have each settled with the PCAOB regarding the use of an unregistered accounting firm.

“We acknowledge the findings of the PCAOB around our Colombia, India, and UK firms,” said Larry Bradley, global head of audit at KPMG, in an emailed statement. “KPMG remains committed globally to the highest standards of quality and integrity. We are driving a relentless focus on quality and consistency throughout our global organization.”