Category: KPMG

Mike Mayo Is of the Opinion That Citigroup ‘May Have Violated Sarbanes-Oxley’

Last week we heard from a number of people on the topic of Citigroup’s internal controls that while it didn’t sound like they were quite up to snuff, KPMG was somehow cool with it and Vikram Pandit signed his name to it, saying that everything was hunky dory.

Now along with bloggers and journalists, the scourge of Citigroup, CLSA analyst Mike Mayo, has decided to get into the act:

Citigroup may have violated Sarbanes-Oxley with its 2007 10-K submission, in our opinion. The new information relates to letters from regulators that were only revealed earlier this year as part of the FCIC archive. We believe these letters between Citi and the Fed, Citi and the OCC, and the OCC with internal staff, imply that Citi should have known about internal control shortfalls for the year 2007 and was directly told about them by the OCC only eight days before the 10-K was signed. Also, Citi reported large unexpected losses with less than two months left in the year. Thus, the lingering question in our mind is why Citi signed off on its 2007 10-K as having effective controls in light of such problems. This information is still relevant today because it reflects on the magnitude of the risk shortfalls and what we feel is the higher-than-perceived task of turning them around.

That’s from Mayo’s update on the bank, dated today, and along with the “opinion” on a Sarbanes-Oxley violation, he has a few questions:

To what extent was the audit committee and board at Citi aware of the concerns voiced by various regulators at the time, and who gave the advice to sign the 10-K? To what extent has Citi’s board examined the issue since the release of letters from the FCIC? Has the SEC and DOJ looked into this matter?

We bolded that portion since it might – just might – be referring to KPMG and the apparent disregard everyone had for the letter sent to Citigroup from the OCC. Of course, not everyone always agrees with Mayo, namely Dick Bové who has gave HofK the thumbs up although it was obvious that he’d never heard of the firm. Bové hasn’t weighed in on this particular report but it’s only Monday.

Anyway, Citigroup remains steadfast in their thoughts on the matter, telling The Street’s Lauren Tara LaCapra that the “certifications were entirely appropriate,” although things increasingly seem to be pointing to the possibility that wasn’t the case. A message left for Marianne Carlton, a KPMG spokeswoman, hasn’t been returned.

A Few People Are Not Satisfied with the $624 Million Countrywide Settlement

And, unfortunately for Bank of America and KPMG, that could mean digging through the couch cushions.

Several large institutional investors have rejected a court settlement where Countrywide Financial Corp. had agreed to pay $600 million to a number of national pension funds. Those pulling out of the agreement include BlackRock Inc.; the California Public Employees Retirement System, or Calpers; T. Rowe Price Group Inc.; Nuveen Investments Inc.; and the Maryland State Retirement and Pension System, according to a document from the suit filed in U.S. District Court in Los Angeles. The investors decided the settlement, initially agreed to last May, wasn’t enough and will seek their own terms with the mortgage originator and its current owner Bank of America Corp., as well as Countrywide’s auditor KPMG LLP. KPMG had committed another $24 million to the settlement.

In typical HofK fashion, the firm didn’t bother commenting for the Journal’s story however BofA managed to express their disappointment, “It is unfortunate that some investors chose to opt out of what we believe is a fair and equitable agreement to settle these issues.” Right. Because the likes of BlackRock and Calpers should be tickled pink with the pleasure of splitting $624 million with dozens of other investors.

Big Investors Refuse Countrywide Settlement [WSJ]

How Did Citigroup’s Internal Controls Cut the Mustard with KPMG?

Jonathan Weil writes in his column today about Citigroup and their “acceptable group of auditors,” (aka KPMG) and he’s having trouble connecting the dots on a few things. Specifically, how a love letter (it was sent on February 14, 2008, after all) sent by the Office of the Comptroller of the Currency to Citigroup CEO Vikram Pandit:

The gist of the regulator’s findings: Citigroup’s internal controls were a mess. So were its valuation methogage bonds, which had spawned record losses at the bank. Among other things, “weaknesses were noted with model documentation, validation and control group oversight,” the letter said. The main valuation model Citigroup was using “is not in a controlled environment.” In other words, the model wasn’t reliable.

Okay, so the bank’s internal controls weren’t worth the paper they were printed on. Ordinarily, one could reasonably expect management and perhaps their auditors to be aware of such a fact and that they were handling the situation accordingly. We said, “ordinarily”:

Eight days later, on Feb. 22, Citigroup filed its annual report to shareholders, in which it said “management believes that, as of Dec. 31, 2007, the company’s internal control over financial reporting is effective.” Pandit certified the report personally, including the part about Citigroup’s internal controls. So did Citigroup’s chief financial officer at the time, Gary Crittenden.

The annual report also included a Feb. 22 letter from KPMG LLP, Citigroup’s outside auditor, vouching for the effectiveness of the company’s financial-reporting controls. Nowhere did Citigroup or KPMG mention any of the problems cited by the OCC. KPMG, which earned $88.1 million in fees from Citigroup for 2007, should have been aware of them, too. The lead partner on KPMG’s Citigroup audit, William O’Mara, was listed on the “cc” line of the OCC’s Feb. 14 letter.

Huh. There has to be an explanation, right? It’s just one of the largest banks on Earth audited by one of the largest audit firm on Earth. You’d think these guys would be more than willing to stand by their work. Funny thing – no one felt compelled to return JW’s calls. So, he had no choice to piece it together himself:

[S]omehow KPMG and Citigroup’s management decided they didn’t need to mention any of those weaknesses or deficiencies. Maybe in their minds it was all just a difference of opinion. Whatever their rationale, nine months later Citigroup had taken a $45 billion taxpayer bailout, [Ed. note: OH, right. That.] still sporting a balance sheet that made it seem healthy.

Actually, just kidding, he ran it by an expert:

“As I look at the deficiencies cited in the letter, taken as a whole, it appears that Citigroup had a material weakness with respect to valuing these financial instruments,” said Ed Ketz, an accounting professor at Pennsylvania State University, who reviewed the OCC’s letter to Pandit at my request. “It just is overwhelming by the time you get to the end of it.”

What Vikram Pandit Knew, and When He Knew It [Jonathan Weil/Bloomberg]

KPMG Employee with Combination of Short-timer’s, Spring Fever Pushes the Dress Code Envelope

Last week’s unseasonably warm weather in New York had one KPMG employee – who had recently put in her notice – taking advantage of the pleasant temps to show off the gams. According to a conversation we overheard on Twitter:


To which someone responded:

This infraction, it’s our understanding, occurred at the friendly confines of 345 Park Ave. Now, anyone familiar with the House of Klynveld knows that shorts are definitely frowned upon, especially at 345 Park where backpacks are rumored to get the crook-eye. Showing this amount of flesh in the middle of February, in a staunchly business casual environment, is about as an awesome disregard for the dress code we’ve ever heard.

The most important question, however, remains unanswered: what kind of shorts? Are we talking boxers? Boy shorts? Daisy Dukes? We need a witness (or two or three) and pictures obviously get bonus points.

In Case You Were Wondering, KPMG Is Still Wells Fargo’s Auditor

As we’ve discussed, the sudden departure of Wells Fargo’s now-former CFO, Howard Atkins, has been a bit of a mystery. The bank stated that Howie quit for “personal reasons” but Chris Whalen, for one, wasn’t buying that story and stated that it was an “internal dispute” at the Stagecoach Shop and “public behavior suggests significant problems in the bank’s internal systems and controls as defined by the Sarbanes-Oxley law.”

Then John Carney got all heresay yesterday, reporting:

Others say that the departure stems from a heated argument between Atkins and the CEO of Wells Fargo, John Stumpf. Still others say that there could be even more personal reasons for Atkins leaving.

This is pretty fun because this “heated argument” could have been over something awesome like Atkins’s using Stumpf’s private commode without permission or a spurious challenge in their weekly Scrabble® match. Whatever the reasons for Atkins’s departure, all this speculation got the gang over at The Street wondering that maybe – just maybe – KPMG’s risk management team had soiled themselves over the whole situation and asked the audit team to start drawing up their resignation papers.

KPMG said Friday that it remains Wells Fargo’s […] external auditor, though the firm wouldn’t comment on recent criticism that Wells’ financial disclosures aren’t up to snuff. KPMG spokesman George Ledwith confirmed that the Big Four accounting firm is still working with Wells Fargo, which plans to file its 10-K annual report by the end of the month. Howard Atkins, who had been CFO of Wells Fargo for nearly a decade, resigned unexpectedly last week and won’t be signing off on that report. His replacement, Tim Sloan, will do so instead. “Yes, KPMG LLP is the external auditor for Wells Fargo & Company,” said Ledwith.

So what prompted this brief line of questioning is, in itself, a mystery. KPMG resigning as the auditor of Wells Fargo is about as likely as John Veihmeyer throwing all his copies of Rudy into an incinerator. But then again, maybe The Street knows something we don’t. Was/is/will there be any doubt that KPMG will remain the auditor of Wells Fargo? Rampant speculation and nightmare scenarios are welcome. And if you’re in the know, email us.

Auditor Stands By Wells Fargo [TS]

PwC Picks Up Thomas Henry from KPMG; Will Lead Global Incentives Practice

This could be what PwC’s Talent Leader was talking about she said that poaching, “[Has] always been a place we like to stay competitive.”

Mr. Henry, a tax partner who has spent more than 25 years in public accounting, most recently at KPMG, has extensive experience in all areas of state and local taxation. He is best known for his work in the credits and incentives space, both domestically and worldwide. His experience in maximizing global incentives for large multinational corporations in the United States, Europe, Asia and Africa will enable both US-based and non-US-based multinational companies to benefit from his counsel when entering into economic incentives negotiations.

Thomas Henry Joins PwC US To Lead Global Incentives Practice [PR Newswire]

KPMG Advisory Doubles Down

KPMG’s head of advisory practice in the Americas, Mark Goodburn, recently gave an interview to Consulting Magazine where he predicted that the House of Klynveld would double its advisory revenue by 2015. While this an admirable goal, it certainly causes one to pause and ask the obvious question: “Does this mean we get double the meat?”

But forgetting animal flesh for just a sec, it may cause the more serious-minded of you to ask, “Just how in hell are you going to do that?” Well, MG goes into details about “transformational business,” “the evolving world of risk,” “the myriad of changes in public policy and regulation” and that’s all fine and good but we’re most interested/curious/shaking with anticipation about the acquisitions the firm will make.

Doubling a multi-billion-dollar business in no easy task, for sure, especially when you consider that KPMG advisory will probably have to significantly outpace the market, which most forecasters— including Kennedy Consulting Research & Advisory—expect will experience very modest growth the next several years. Most likely, the firm will have to make a few significant acquisitions along the way.

This probably doesn’t come as a surprise since we’ve seen Deloitte and PwC shopping around to boost their own advisory practices but Goodburn says you won’t see the HofK making a move on every boutique out there:

Goodburn’s quick to point out that any potential acquisitions, would have to meet KPMG’s criteria—the ability to upgrade to a global platform, quality controls that match the firm’s standards and a financially attractive opportunity for clients and employees. “We’re only looking for companies that meet our standards” he says.

Right, then. So for all you consulting boutiques out there sexing yourselves up to get a big pay day, you better be a match or you won’t be getting a blue rose. KPMG is looking for soulmates.

Naturally, all this revenue-doubling and business development talk means headcount will increase. The firm has already put it out there that they plan on hiring people in spades and MG makes no secret about who will be leading the charge:

Goodburn says KPMG has been hiring pretty aggressively since the firm saw its first sustained uptick back in early 2010, but will that be enough to keep pace? “We certainly expect advisory to grow faster than other parts of the KPMG business in the near and possibly longer term,” Goodburn says. “Our brand is very strong right now, clients are demanding our services, our people are outstanding, and our ability to recruit is extremely high.”

So, from the sounds of it, opportunity abounds for KPMG’s advisory business and anyone interested in joining the blue team. Whether this manifests into an extra-beefy future remains to be seen.

Double Time for KPMG [Consulting Magazine]

Comp Watch ’11: Follow-up on KPMG Transaction Services Midyear Adjustment

Sounds like the previously mentioned potential raises got the John Veihmeyer stamp of approval.

Follow up on the midyear comp email from last wk- srs get 4% and mgrs get 5%. Does not apply to corporate finance and restructuring. Call is still going on right now trying to sell KPMG big time and convince people to not leave

We’ve been told that the raises are effective immediately. We’ll keep you updated.

The Fortune 100 Best Companies to Work For: KPMG #86 (2011)

Wrapping up our review of the mother of all employer lists, is everyone’s favorite four-letter word, KPMG. Since we’ve had about all we can stand of this, let’s get right to it.


KPMG – Previous rank: #88. How does the firms make up for the lack of sherpas? They appeal to employees’ desire to give back, reports Fortune, “Employees of the U.S. branch of the auditing firm get 12 paid hours to volunteer each year and can leave at 3 p.m. Fridays in the summer [Ed. note: while keeping in mind the needs of clients].”

Stats of note:
• New Jobs (1 year): -1,043
• % Job Growth (1 year): -5%
• % Voluntary Turnover: 15%
• No. of Job Openings at 1/13/2010: 5,000
• Most common salaried job: Senior Associate – $73,300
• % Minorities: 27%
• % Women: 48%

Compared to last year’s stats, new jobs and percentage job growth have improved while voluntary turnover jumped 3%. Average salary for the most common job was down from $78k last year, number of job openings nearly doubled and percentage of minorities and women were unchanged. So a slight improvement for KPMG this year in the F100BCTWF and nary a mention of the possibility of more free flesh in the future.

Annnnd so, that wraps up the coverage for this year’s Fortune rankings. The biggest takeaways being the ascension of Plante & Moran and Ernst & Young’s massive drop while the other three amigos managed to improve slightly but they all managed to extend their streak of years on the list. Look for a flier boasting this arbitrary victory in an office near you.

Earlier:
The Fortune 100 Best Companies to Work For: Plante & Moran #26 (2011)
The Fortune 100 Best Companies to Work For: Deloitte #63 (2011)
The Fortune 100 Best Companies to Work For: PwC #73 (2011)
The Fortune 100 Best Companies to Work For: Ernst & Young #77 (2011)
The Fortune 100 Best Companies to Work For: KPMG #88

Layoff Watch ’11: KPMG Cuts IT Support Staff

Fyi- I’m forced to write this on my mobile so anyone that notes typos can piss off.

Anyhoo, for whatever reason, the KPMG beat is awfully hot today. This latest scoop we have is the unfortunate news that layoffs have reared their ugly head in Monty:

Caleb,

No chatter on the ~200 layoffs at KPMG IT support staff in Montvale this past Friday whose positions went to IBM outsourcing?

Oddly enough, we did hear about this just yesterday and hadn’t had the time to check it out. Now that we’ve been spurred into action, this confirms the original tip we received about the IT staff and that the work was going to IBM. This is the first news we received about the staff in Montvale, the original news we received was with regard to the New York office, a staff of approximately 17, we were told.

These in-house IT layoffs feel oddly familiar to the cuts made by PwC late last summer, who also planned to outsource those positions. P. Dubs also stated that they would offer some professionals other opportunities within the firm and would be creating a number of new jobs in the Tampa area, where those cuts occurred. So far there hasn’t been any indication that KPMG was doing something similar.

A message with KPMG spokesman Dan Ginsburg’s office was not immediately returned. We’ll keep you updated with any further details.

Compensation Watch ’11: KPMG Transactions and Restructuring Services May Get Some Extra Love

From the mailbag:

Thought y’all might be interested in hearing about a practice specific mid-year salary adjustment announced today [Monday]. Transactions and Restructuring (aka Transaction Services/TS; 750 people nationwide) had a national update call today during which, the partner in charge, Dan Tiemann [a Top 25 Consultant, no less], announced that he is very close to having firm leadership approve a mid-year comp adjustment for up to 5% for all members of the practice.

He mentioned that he is aware of the PwC iPad program and the Deloitte midyear raises and that it’s time that KPMG (well, at least the T&R practice) did something as well. This is in addition to the staff bonus program announced before xmas, and will be in addition to merit raises/incentive comp later this year

He said he’s well aware that somebody who wants to leave for a salary bump (as myself and many of my colleagues are considering) will not be deterred by a paltry 5%, but that he thinks the practice needed to do something to “show appreciation” for those who have sacrificed weekends and vacations during the past few months.

As our tipster notes, this is not yet approved by the brass but notes that “the recent barrage of defections” may have been a motivating factor. Also, our source doubted that anything like this would occur for large practices like audit or tax, “there is hope for the rest of advisory or other specialty practices.” If you hear any hopefulness for your practice – advisory, speciality or otherwise – email us.

KPMG’s Latest “Green Initiative” Has One Employee Demanding Sherpas

[caption id="attachment_24110" align="alignright" width="150" caption="Clearly a KPMG auditor; all the supplies are blue."][/caption]

As many of you are aware, schlepping around a laptop, supplies and God knows what else is standard operating procedure for many Big 4 employees. If you work in New York, this annoyance is compounded by the fact that you have to coordinate all this stuff in an awkward balancing act in order to walk (at least partially) to your desired location. Even if your engagement budget allows you to take a cab, the annoyance factor is high.

Unfortunately, this has now been made worse (never mind the slick sidewalks for two), according to a tipster who has a beef with the New York office of KPMG’s latest attempt to save the planet:

I don’t know why this set me off the way it did, but this really made me very angry so I thought I’d send it in to you to post for open internet mockery. Now in addition to carrying around a laptop, printers, the new second monitors, binders etc all over the city, KPMG expects me to strap a MUG to myself and heaven forfend I use a “Guest Mug” because then how will I compete in this swell “Original Mug Contest”?

I’m 115 pounds, I don’t have the body mass to deal with what is gradually turning into some sort of fully equipped mountain climbing expedition. KPMG needs to start handing out sherpas. Immediately after this email went out, about three different conversations involving stockpiling paper cups in various drawers started around me. What is 500K cups anyways, about half a tree? My free cup of crummy coffee in my paper cup that requires next to no effort to get is the high point of my day, so screw you KPMG Green Initiative.

Here’s the email describing the initiative (sorry for the disjointed look, we had to clip it twice) that caused our tipster to fly off the handle.

So not only does insufficient auditing space have their unforeseen repercussions, the quantity of stuff that auditors are asked to drag with them is reaching critical mass. No lives appear to be in danger yet but one has to wonder where the breaking point is. Your concerns and reactions are welcome at this time.