KPMG hit with big fine from US watchdog for exam cheating

The US audit watchdog has stung KPMG Australia to the tune of $615,000, for widespread and systematic cheating on internal audit integrity exams dating back to at least 2016.

The Australian branch of KPMG has been fined more than half a million dollars by the US audit regulator for widespread cheating on audit exams, which were in part designed to ensure practitioners acted with integrity. In arriving at its $US450,000 sanction, the Public Company Accounting Oversight Board determined that around 1,130 KPMG partners and staff had been involved in “improper answer sharing” between at least 2016 to early 2020.

“The Board is imposing these sanctions on the basis of its findings that KPMG Australia violated PCAOB rules and quality control standards over several years in connection with the firm’s internal training program,” stated the watchdog in its ruling, while noting that it took into account KPMG Australia’s “extraordinary cooperation in the matter, including self-reporting, substantial assistance, and personnel and policy actions.”

Those personnel actions include the departure of at least two partners, while dozens of employees are said to have been stripped of pay entitlements, including 16 partners and amounting to tens of thousands of dollars in penalties. In total, more than 1,130 individuals within KPMG’s 6,700-strong Australian headcount have received disciplinary action over the affair, in the least through verbal or written cautions for the sharing or receiving of exam answers.

“I’m disappointed because the conduct reflects on all of us,” said KPMG Australia CEO Andrew Yates, who was installed after the cheating time-frame alleged by the PCAOB but headed the firm’s national audit, assurance and risk management practice during that period. “It is important today to come full circle and be transparent and reinforce to our partners and people that this behaviour is totally unacceptable,” Yates added.

The public censure will be an unwelcome distraction for Yates, despite claims the firm has acted with “great integrity and great intent” for self-reporting and its program of remediation since, with the new CEO having embarked on a progressive cultural reset since taking the helm in July. The past two months have seen KPMG introduce 26 weeks of flexible paid parental leave, as well as call for superannuation reform to support primary carers.

Regardless of KPMG’s cooperation, the PCOB didn’t hold back. “From at least 2016 until early 2020, KPMG Australia violated PCAOB rules and quality control standards related to integrity and personnel management by failing to establish appropriate policies and procedures for administering and monitoring training tests, including tests designed to help the firm’s audit professionals satisfy the requirements for maintaining their accounting licenses.”

“Everyone at our firm is now absolutely clear that there are non-negotiable expectations of behaviour aligned with our values,” concluded Yates. “The behaviour struck at the heart of our culture and that’s why it was crucial we acted quickly and decisively. It is also why we need to learn from this experience. We believe the PCAOB recognised how seriously we treated this issue from day one and could see we had stepped up and taken ownership of our response.”