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The PCAOB Just Handed Out Its Biggest Fine to Date to Some KPMG Cheaters

people sharing exam answers

In a story we’ve been following since Dutch news outlets started reporting on it last summer, it appears exam cheaters at KPMG Netherlands have, as we suspected they eventually would, been hit with a fine from the PCAOB. Not just a fine. The $25 million civil money penalty on KPMG Netherlands is the largest fine the PCAOB has ever imposed.

First, the earlier reporting. DutchNews wrote in July 2023:

At least 500 workers at KPMG in the Netherlands have cheated during the compulsory exams which accountants are required to take, the consultancy group has confirmed.

KPMG said it had imposed sanctions on an unknown number of employees, and “a handful” had been fired following an internal investigation into the claims that staff had swapped answers to the tests.

KPMG Nederland director Marc Hogeboom is also stepping down as boss of the accounting arm, but remains an auditor and partner at KPMG. He said in a statement he “should have been more alert to signals” that pointed towards workers sharing their answers.

We brought the situation up again late last month when Mazars’ Dutch arm reported their own “misconduct on exams” in its annual report. If the PCAOB wasn’t interested in digging around already, that certainly would have gotten their attention.

Alas, they had already been on the case. Announced today, the PCAOB has hit both KPMG Netherlands and former Head of Assurance Marc Hogeboom with some hefty fines related to cheating.

Said the PCAOB in a press release:

As described in the PCAOB’s orders, from 2017 to 2022, hundreds of professionals at KPMG Netherlands engaged in improper answer sharing – either by providing access to test questions or answers, or by receiving such access without reporting it – in connection with tests for mandatory firm training courses. These courses related to a variety of topics, including U.S. auditing standards, professional ethics, and independence. The improper answer sharing reached as far as partners and senior firm leaders, including Hogeboom (at the time the firm’s Head of Assurance and a member of the firm’s Management Board). The growth of this widespread answer sharing was enabled by the firm’s failure to take appropriate steps to monitor, investigate, and identify the potential misconduct. For example, starting in June 2020, the firm was aware that (1) answer sharing had occurred at a KPMG service delivery center serving KPMG Netherlands and KPMG LLP (United Kingdom) and (2) the sharing had extended to the U.K. firm’s personnel. Nevertheless, KPMG Netherlands took virtually no steps to investigate potential answer sharing among its personnel until a whistleblower reported such misconduct in July 2022.

During the PCAOB’s investigation, the firm submitted – and failed to correct – multiple inaccurate representations to the PCAOB. In the submissions, the firm claimed that it had no knowledge of answer sharing by its personnel until it received the July 2022 whistleblower report. These submissions, reviewed by the firm’s Management Board and Supervisory Board, were false because members of those two Boards had themselves already engaged in answer sharing misconduct before July 2022.

The above misconduct revealed an inappropriate tone at the top of KPMG Netherlands and a failure by firm leadership to effectively promote an ethical culture among firm personnel with respect to improper answer sharing and monitoring of the firm’s system of quality control.

“The PCAOB will not tolerate cheating nor any other unethical behavior, period,” said PCAOB Chair Erica Y. Williams. “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. I thank the Dutch Authority for the Financial Markets for its cooperation in the investigation of this matter and applaud the enhanced supervision measures it has taken to hold the firm accountable going forward.”

Don’t say we didn’t warn you.

Look, a historic fine is great and all but the question that always gets asked in the comments every time this issue comes up is does it really matter? There was a big scandal with PwC Canada sharing answers that came to a head in 2020 — staff thought helping each other out on these bullshit training exams was “collaborative culture” — yet while it was happening the firm was getting ZERO deficiencies in its PCAOB inspections. Isn’t that what we want? Isn’t that peak performance?

To be fair, the lying to the PCAOB part is a little out of line.

PCAOB Imposes Record $25 Million Fine on KPMG Netherlands and Bars a Firm Leader After Exam Cheating, Misinforming Investigators [PCAOB]

4 thoughts on “The PCAOB Just Handed Out Its Biggest Fine to Date to Some KPMG Cheaters

  1. Continuing professional education is a waste of time. The PCAOB should worry about important things. Like PWC’s independence violations which only netted it a $2,750,000 fine. That some exam sharing got a KPMG affiliate nine times as much is absurd.
    What prompted this? A few months ago E&Y got a $100 million fine for a similar incident. Seeing this, the PCAOB decided to get a headline, in effect saying, “see. We can be useful. By the way, don’t fold us into the SEC”. The continuing education requirements do as much to ensure CPAs are competent as the 150-hour rule, i.e., nothing. The SEC wasted its time on E&Y and the PCAOB did on KPMG.

    1. I don’t disagree with what you’re saying about CPE – it is absolutely a waste of time but its a money maker for the AICPA.
      The issue is integrity of the profession and tone at the top. KPMG in particular should be aware of this – the scandal from 2018 where they were gaming the PCAOB inspection process is not ancient history. Any non-Big 4 firm would have been obliterated for cheating on an enforcement process like that. You get the impression they will cheat at anything.

  2. Did you read the Fed’s combined 2023 financials? They show total assets of $7,836 billion. There is a $948 billion difference between the fair value of the Fed’s Treasury Bond holdings and their fair value. The Fed recorded a $133 billion deferred asset that, if I understand the footnotes, is deferred operating losses. The Fed’s current equity is $52 billion. The Fed does not use GAAP, but it’s own accounting standards.
    The Fed’s CPAs claim to have audited the Fed’s financials under PCAOB standards.
    These may be the worst financials since Enron.
    Imagine, even with over 400 economists on staff, the Fed did what the S&Ls did about 45 years ago, i.e., borrowed short and lent long.
    By the way, the Fed’s CPAs: KPMG.
    What more can one say?
    Will the PCAOB look at this and see how KPMG determined the $133 billion has any value?
    No. The PCAOB is preoccupied with continuing professional education and other nonsense.
    I agree. If any firm other than the Big Four did what KPMG did in 2018, it would be obliterated.
    Let the PCAOB tell us how fair it is.

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