KPMG director banned for life
The US Securities and Exchange Commission (SEC) has banned former KPMG executive director Cynthia Holder for life for her role in leaking confidential material from the US audit watchdog about upcoming bank audit inspections
In a recent order, the regulator revealed that she had been “denied the privilege of appearing or practicing before the commission as an accountant” with immediate effect.
In August, Holder – a former inspections leader at the Public Company Accounting Oversight Board (PCAOB) who later joined KPMG – became the first of a group of individuals from the two organisations to receive a federal prison sentence over the scandal. She was sent down for eight months.
She had pleaded guilty in October 2018 to passing on information about inspections while she was still working for the audit watchdog, and to handling stolen data which a disaffected PCAOB staff member passed on to her when she moved across to the firm.
In the run-up to the cheating scandal, KPMG had received more negative comments about the quality of its audits than its competitors. This was particularly so in 2014.
In 2015, it had upped its efforts to improve its performance and, among other measures, recruited two former PCAOB staffers, Holder and her colleague Brian Sweet.
According to the indictment filed against Holder, she conspired with three senior KPMG partners – David Middendorf, KPMG’s former national managing partner for audit quality and professional practice, Thomas Whittle, KPMG’s former national partner in charge for inspections, and David Britt, KPMG’s former banking and capital markets group co-leader – as well as Sweet and Jeffrey Wada, a PCAOB staffer, to illegally acquire valuable confidential PCAOB information that would help to improve their inspection results.
For instance, while she was still employed by the PCAOB but seeking to join KPMG, she passed on information about certain future inspections to Sweet who was already employed by the firm. She also continued to work on KPMG inspections.
When she was offered a job at KPMG, she stole more information before she left the PCAOB which she gave to Sweet, her new boss.
Once she was installed at KPMG, she continued to handle stolen PCAOB information supplied by Wada, who had been passed over for promotion at the regulator. The data included the PCAOB’s 2016 confidential list of inspection selections.
When the list reached Middendorf, Whittle and Britt, they decided to launch a stealth programme to “re-review” the targeted audits. “The stealth review programme allowed KPMG to double-check its audit work, strengthen its working papers, and, in some cases, identify deficiencies or perform new audit work that had not been done during the live audit,” the indictment said.
In January 2017, Wada provided KPMG with a provisional list of 2017 inspection selections. Whittle then asked Sweet to confirm when they would get the final list. A month later, Wada texted Holder to say, “I have the grocery list… All the things you’ll need for this year”. He then spoke to her and gave her the confirmed list.
Middendorf, Whittle and Sweet decided to let the relevant engagement partners in on the scheme “so that extra attention could be paid to these audits in light of the forthcoming PCAOB inspections”. However, one of the engagement partners reported the matter and KPMG launched an internal investigation. Holder and Sweet then set about destroying evidence in an effort to cover their tracks.
In June, KPMG agreed a settlement with the SEC over the scandal under which it paid out a fine and disgorgements of $50m (£38.5m).
Originally published in Economia on 3 December 2019.