News Yesterday
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The American regulator PCAOB imposes a fine of 25 million dollars on KPMG Accountants Netherlands in connection with exam fraud and the way it was dealt with. Former director Marc Hogeboom, who has since resigned, has been banned for life by the PCAOB and fined $150,000 for his role in the matter.
The Public Company Accounting Oversight Board (PCAOB) reports the fines on its own website. This is the largest fine the PCAOB has ever imposed, the American regulator reports. At KPMG, hundreds of professionals committed exam fraud, including partners and the head of the assurance practice, the PCAOB said.
Under the cap
In practice, this involved a widespread exchange of questions and answers during (mandatory) tests and examinations, in a culture in which large-scale examination fraud could arise and persist for a long time, according to the regulator.
KPMG is also expressly accused by the PCAOB of keeping the matter under wraps for a long time. For at least five years, hundreds of professionals have committed fraud when taking exams, but KPMG is said to have repeatedly provided incorrect information to the regulator.
For example, it was already known internally in June 2020 that answers to tests were being shared, but KPMG did not investigate this further until a whistleblower reported this in the summer of 2022.
Suspension for Hogeboom
The PCAOB imposes a lifetime ban on Marc Hogeboom, former head of KPMG’s accounting practice. As a result, he can no longer conduct audits at organizations that fall under PCAOB supervision.
In addition, Hogeboom was fined $150,000. He is also said to have been personally guilty of sharing answers from internal tests, the American regulator reports. Until now, it was only known that Hogeboom had stepped down to take responsibility for the issue.
KPMG will also review and improve internal quality controls. The office will report to the PCAOB on compliance with the rules and procedures.
Damage to trust
AFM director Hanzo van Beusekom indicates that technically there is a settlement between KPMG and the American regulator, which is paid by KPMG’s Dutch partners. Both KPMG and Hogeboom have agreed to the mentioned settlement amount, without admitting or denying the allegations.
The PCAOB will use the fine amount for training programs. The AFM itself does not have the option to offer such a settlement, so this was decided in consultation with the PCAOB. This also provides a “strong signal” to the profession and society.
Van Beusekom emphasizes that “accountants must realize that their core business is adding trust, which is not credible when their own integrity and professional competence is under discussion.” The whole issue “certainly does not do any good for the reputation of KPMG and the Dutch audit profession, let that be clear”, according to the AFM director.
According to the AFM, the handling of the exam fraud exposed “the inability to effectively promote an ethical culture with regard to improper sharing of answers and monitoring the quality control system aimed at this”.
Van Beusekom also understands that disciplinary measures are being requested for accountants involved, but “the AFM places that responsibility on the NBA and the firms,” he says. “We’re not going ourselves push towards disciplinary law, but understand that the NBA and the offices have a difficult conversation to have.”
He does not expect news about the investigations at other accounting firms into exam fraud until the course of 2024. After a request from the AFM, internal investigations are underway at all six Dutch PIE firms.
Supervision by AFM on KPMG
The AFM will monitor KPMG Accountants Netherlands more closely in the near future. This includes root cause analysis, establishing policies and procedures to prevent inappropriate sharing of responses within the organization, and identifying and investigating further appropriate changes to corporate culture.
According to Van Beusekom, it is “important to really understand how this could have arisen, also to see whether there are any other blind spots in the corporate culture. So that this moment can be fully utilized to learn lessons for the future.” According to Van Beusekom, the PCAOB and the AFM work well together in the supervision of audit firms.
KPMG response
KPMG acknowledges in a response that, since at least October 2017, more than five hundred people have been involved in “unethical behavior with regard to testing the training, including sending or receiving answers to tests or helping each other take tests.” . The settlement with the American regulator “reflects that KPMG Netherlands violated several PCAOB rules.”
Stephanie Hottenhuis, CEO of KPMG Netherlands, calls the conclusions “shameful” and the fine hefty. “I am deeply sorry that this inappropriate behavior has occurred within our organization. We apologize to our customers and stakeholders.”
According to KPMG, sanctions have now been imposed on employees “of all levels of seniority” who, after investigation, were found to be involved in sharing answers. For some this meant leaving the organization.
“Following a second whistleblower report, including with regard to a member of the board of directors, all members of the board of directors and the supervisory board are subject to additional personal investigation for participation in answer sharing,” the firm said . “As a result, the former head of assurance had to leave the firm as a partner, after previously resigning as a member of the board of directors. The then chairman of the supervisory board himself said that he had part of a test completed and therefore resigned.”
Remedial measures
KPMG said it has now taken “several targeted remedial measures” and is working on further improvements in the areas of policies and procedures relating to the testing of mandatory training and internal culture. The AFM monitors this recovery process more closely. The supervisory board of KPMG Netherlands will also monitor this closely.
Hottenhuis speaks of a “hard lesson”. According to her, KPMG Netherlands encourages “everyone within the organization” to address each other and the management or to question unethical actions. “The fact that this could have happened is wrong and unacceptable, especially given our social task, we must learn from this.”
According to the CEO, KPMG has now started an additional culture program for all teams within the organization.
