The Department of War Broke Up with KPMG, KPMG Gives Up Federal Audits Altogether

Posted on by Going Concern News Desk
Aerial view of the Pentagon

The other day — and by the other day we mean like more than a week ago — we received a text on the tipline that read “KPMG US to get rid of the federal audit practice by not renewing their clients contracts.”

That is pretty big news so we tried to substantiate it with something, anything other than just the tip (believe it or not that’s a thing we do), a quest which left us empty-handed. Well now we can write it up because Financial Times was able to confirm it and dig up more info:

KPMG is shutting its federal government audit business and shifting more than 450 US staff to other roles after losing a $60mn-a-year contract with the Pentagon.

The Big Four firm had audited the US Army for almost a decade but the defence department plans to use a new accounting firm to oversee a larger proportion of the military’s accounts, as political pressure mounts to get a grip on its chaotic finances.

Current federal audit clients at KPMG include the Departments of Justice, Labor, Transportation, and Energy as well as the Treasury. All will be wound down by the time the last contract expires in 2030. Said KPMG in a statement to FT: “Over the past few years, KPMG has prioritised advisory services for the federal government, We are transitioning out of federal audit roles through an orderly, multiyear process, meeting all client and regulatory obligations. As demand continues to grow across both audit and advisory, we will be redeploying our talented federal audit professionals across the firm to meet client needs.”

Secretary Pete Hegseth said in a Department of War video posted on YouTube yesterday that “the era of excuses is over” and promised a clean audit opinion by 2028. Show don’t tell, bro.

Do we think they’ll go over to EY since EY was the firm that was able to give the Marines something no other military branch had ever gotten before (that is to say, a clean audit opinion)?

And do we think Deloitte is busy schmoozing it up in Washington to get back some of the federal money they lost when they got DOGE’d hard last year?

While we’re at it, do we think anyone else with a decent federal practice is going to try to slide in there and get a piece of this?

And the most important question of all: do we think the Pentagon can actually get a clean opinion?

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PCAOB Chairman James Doty Is Concerned That Some Auditors Either Don’t Care or Are Completely Ignorant About the Notion of Independence

As you may have heard, PCAOB Chairman Jim Doty gave a speech at the University of Southern California yesterday where he discussed among other things, the possibility of mandatory auditor rotation and changing the standard auditor’s report. The prospect of these two changes aren’t exactly something auditors are stoked about but some people are of the opinion that a) auditors like to get a little too chummy with their clients which leads to b) not taking the “independence” thing too seriously and c) the auditor’s report, in its current form, its pretty much worthless.

You can read Doty’s entire speech over at the PCAOB website where touches on all of these but here’s one example around independence that probably qualifies for, in Doty’s words, “[an] approach [to] the audit with an inappropriate mindset”

[An] audit partner’s self-assessment claimed that he “overcame long-standing barriers against non-audit services at [two audit clients] with a series of well-planned meetings and supporting presentations with the Audit Committee Chair, the full Audit Committee, the CEO and the CFO at both companies.”

In response, his reviewing partner noted that he was –

highly alert to cross service line opportunities and has successfully penetrated both of his accounts where few services had been
provided in the past. The results of these efforts were a number of proposals and wins but the efforts will likely impact FY 11 in [a] more significant way.

Anyway, there are other stories of bad auditor behavior, so check the whole speech if you feel so inclined. And while Chairman Doty admitted that “We don’t see these problems in all the files we look at,” it causes he and others to wonder if “these audit partners are unaware of, or simply unconcerned about, the independence rule that should make such considerations irrelevant to their compensation, and why a firm would allow such unawareness or unconcern to continue unabated.”

So flagrantly bending the rules to the point where they might as well be breaking or stupidity? Neither is too flattering.

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