KPMG fined US$25m over exam cheating at the ‘highest levels’
On the same day, the US regulator announced fines against two Deloitte firms for similar behaviour, cementing a troubling legacy among the industry's largest firms.
On Wednesday, US audit regulator PCAOB issued KPMG Netherlands with the largest fine in the regulator's history over “widespread” exam cheating at the firm.
“This case did not take place in a vacuum,” said PCAOB chair Erica Y Williams, referring to separate PCAOB enforcement actions against Deloitte Indonesia and Deloitte Philippines, also for exam cheating announced on the same day.
Over five years from 2017 to 2022, KPMG Netherlands failed to protect against the “improper answer sharing” of hundreds of its professionals in internal training tests, found the PCAOB.
An “inappropriate tone” among the firm’s senior leadership and a failure to promote an ethical culture had allowed the wrongdoing to occur, said PCAOB.
“The improper answer sharing reached the highest levels of personnel at KPMG Netherlands,” it added, referring to the problem as “widespread.”
The firm’s then head of assurance, Marc Hogeboom, was singled out in a separate disciplinary order, in which he was ordered to pay a fine of US$150,000 and barred from associating with a registered public accounting firm.
KPMG Netherlands also misled the PCAOB in submitting it did not know about any answer sharing within the firm. These submissions were reviewed by the board before being sent, despite two members of the board – Hogeboom included – having personally engaged in the misconduct.
According to Williams, the firm’s chief executive learned the submissions were false months prior to a whistleblower coming forward.
PCAOB said “Hogeboom knowingly and recklessly contributed directly and substantially” to the violations and “repeatedly concealed his misconduct” from the firm’s leadership and the regulator.
“Hogeboom engaged in conduct that compromised the ability of the Firm’s quality control system to provide reasonable assurance that its personnel performed their professional responsibilities with integrity and were appropriately trained,” it added.
The tests relate to auditing standards, professional ethics, and independence. KPMG personnel engaged in a range of cheating practices, including sending and receiving answers electronically or taking tests jointly.
PCAOB said the “vast majority” of the cheaters worked in the firm's assurance practice while some had responsibilities over implementing the firm’s quality control framework.
“Impaired ethics threaten the investor confidence our system relies on, and the PCAOB will take action to hold firms accountable when they fail to enforce a culture of honesty and integrity,” said Williams.
The accounting profession, internationally, has an enduring legacy of exam cheating and the phenomenon is most pronounced at the big end of town.
Also on Wednesday, Deloitte Philippines and Deloitte Indonesia were ordered to pay US$1 million each for exam cheating in recent years.
Since 2021, PCAOB said it has sanctioned nine registered firms for exam cheating. In 2019, KPMG was ordered to pay US$50 million to the SEC for a range of violations including internal exam cheating.
Australia has not been immune from scandals of this sort. In 2021, PCAOB fined KPMG Australia US$450,000 for similar “widespread” cheating, implicating as many as 1,100 KPMG partners and staff.
CA ANZ commissioned a review into its policy framework following claims the body had failed to appropriately crack down on the scandal in mid-2022.
Last year, its members voted overwhelmingly in favour of adopting the changes to its by-laws recommended by the review. A spokesperson for CA ANZ said the vote was "the strongest possible indication that both CA ANZ and its members want a robust, independent, and fair framework."
"The ability to impose significant fines like we have seen from the PCAOB requires statutory powers under legislation," added the spokesperson.
"During recent appearances at both the Senate and Parliamentary Joint Committees, CA ANZ has told the inquiries that we would gladly accept the ability to do the same."
CA ANZ also confirmed its disciplinary bodies have initiated investigations and intelligence gathering in response to allegations of academic misconduct and that academic integrity has been a compliance focus in recent years.
"CA ANZ takes academic integrity very seriously, and the vast majority of our members live by CA ANZ’s By-Laws and the profession’s Code of Ethics," it said.
