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September 23, 2023

KPMG Drops an Annoying, Dysfunctional, Possibly Corrupt Client

An editorial from the Orlando Sun-Sentinel has some wonderful details about the fallout between KPMG and Broward Health, one of the largest health systems in the country.

Broward announced on Monday that KPMG was resigning as auditor. This came about, according to the Broward chairman, due to a misunderstanding:

In a Friday letter to the firm, board Chairman Rocky Rodriguez said KPMG partner Karen Mitchell made inconsistent statements about whether her office could complete the audit by Dec. 1, the deadline set by banks and bond markets that have a financial stake in Broward Health.

"The response we received today failed to provide the clarification the board requested," Rodriguez wrote. Instead, he said KPMG unilaterally invoked its termination clause and volunteered to waive its 120-day notice period. And without waiting for Wednesday's emergency board meeting, Rodriguez unilaterally accepted KPMG's decision to walk away.

This isn't something that happens too often. We talk a lot about how audit firms bend over backwards for clients to avoid ending a business relationship. In some cases, even when the auditors know in their heart of hearts that something untoward is going on, they can't let go.

But there are exceptions and, in this case, KPMG couldn't deal with Broward any more. You see, Borward Health is a bit of trouble, as they "[face] a swirl of state and federal investigations into possible corruption, plus a federal corporate integrity agreement for having made illegal payments to doctors."

So if you're an auditor, and you know all this investigating and (alleged) corrupting and illegal paying has been going on, you're naturally going to ask about it, right? You're going to need some details. There will be checklists to fill out. There will meetings. Lots and lots of meetings.

Furthermore, if you're the organization being audited, you should be ready to explain what's going on. There's virtually no doubt that your auditor will bring it up, so you might, you know, prepare for some awkward conversations about these matters.

But not if you're Broward Health's board:

[T]he board didn't want the auditors asking about federal or state grand jury investigations, interviewing employees involved in such investigations or seeing what the hospital system may use in its defense. A contract addendum said the company was responsible only for verifying that financial statements were not fraudulent. It essentially said the corruption investigations were none of KPMG's business and that the board would let auditors know of anything they might need to know.

If a corruption investigation isn't an auditor's business, who's business is it? It's so odd to read about a board obstructing auditors so blatantly. But what's even stranger are the events leading up to all this:

KPMG's call for a forensic audit was no surprise. Mitchell put the system on notice after the suicide of its chief executive officer, the sudden departure of its chief financial officer, the arrival of the state's inspector general and the talk of an FBI corruption investigation.

But over the last seven months, long after the audit should have begun, certain board members pushed back against the scope. In doing so, they also ignored the advice of their chief executive officer, their chief financial officer, their internal auditor and their Audit Committee, all of whom wanted KPMG to do the work.

Oh, man, that sounds exhausting. I can just see Karen Mitchell putting her hands up and saying, "You guys are gonna have to sort this out. But not with us."

Good luck to the firm that picks up this dumpster fire.


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