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A Running List of Unanswered Questions About the KPMG Audit Inspection Conspiracy

Posted on by Caleb Newquist
questions kpmg pcaob conspiracy

Updates appear below

If we learned anything from yesterday’s indictment of six accountants — five of whom were employed by KPMG — it’s that there are even more questions that remain unanswered. Some of these questions are simple and some of them are complicated, but it seems worth the time to list them here.

  • Is the U.S. Attorney or the Securities and Exchange Commission conducting other investigations related to this matter? Is the threat of criminal charges being used by the SEC to wrestle more settlements? UPDATE: Francine McKenna’s post from yesterday stated that during a call with reporters “the SEC’s co-director of enforcement Steve Peikin told reporters that the investigation regarding additional individuals or organizations is continuing.”
  • Is KPMG under investigation for criminal or civil offenses? At what point, if at all, do the activities of these partners, and their proximity to the top of the firm, implicate the entire firm?
  • If criminal charges are not pending against KPMG, what led the Department of Justice to reach that conclusion? Same question goes for the SEC.
  • Why is Scott Marcello, the former vice chair of audit not named in the indictment or the SEC orders? Did he, or is he currently, cooperating with authorities?
  • To what extent were Partners 1 through 4 from the indictment aware of the nature of the information or instructions they were given as it related to the work they were being asked to do?
  • What about the conversation between Brian Sweet and Partner-5 caused Partner-5 to report the information — that his engagement would be inspected by the PCAOB — to his superior, who then informed KPMG’s Office of General Counsel?
  • Why was Brian Sweet the only person to cut a deal? Are any of the others facing charges being given a chance to cooperate? (Considering the penalties, I suggest they take a deal if offered.) UPDATE: Here is indictment against Sweet. He pleaded guilty to the conspiracy charge and one count of wire fraud.
  • Were Sweet, Cynthia Holder, or Jeffrey Wada approaching their contacts at other Big 4 firms about positions?
  • Who is the data analytics firm that KPMG retained to help predict which engagements would be inspected by the PCAOB? Have other Big 4 firms used this firm to help with their efforts to predict the PCAOB’s selections? What other tactics are firms using to predict these selections?
  • UPDATE: Tammy Whitehouse at Compliance Week rightly wonders if the inspection results should be restated.

This will suffice for now. If you have others that you think belong. Let me know and I’ll update this list.

 

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As you’re no doubt aware, last Friday Deloitte made the announcement that the market for audit salaries had been misunderestimated and a second adjustment was going to be communicated to opiners this week.

Checking with a source inside Deloitte, we’ve heard some of the preliminary returns:

I have heard rumors of 5k in Hartford and 4k in Chicago for Seniors. But nothing to prove them out. The general range I have heard though is 2kish for 2nd years and 5k for seniors.


No word at at this point on what managers are receiving, so if you’ve gotten the news, let us know below.

The question now is – was all this hoopla worth it? Granted it’s early but if the range is in the ballpark, there’s likely a few people that are simply, “meh.” On the other hand, maybe if you got called in for another meeting to be told that you’re getting an extra $2k – $5k you might be really flippin’ stoked. However, many people will likely remind you to get some perspective.

Either way, the tax practice is feeling short-changed and advisory is too busy rolling around in their cash-filled bathtubs to care.

Discuss the situation at present and keep us updated with the adjustment news just as soon as your sit-down is over.

UPDATE – 12:45 ET: This just in:

Deloitte experienced assistant from South Florida – $2k for audit assistants, $5k for seniors.

total raise for the year with comp adjustment – 8%. Could be better but could be the original 4% I got in August…

UPDATE – crica 2 pm ET: The latest:

Miami: 2nd years: $2k, Seniors: $5k
Parsippany: 2nd years: $5K Seniors: $8K Managers: $6K

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The Washington Post recounts Deloitte’s purchase of BearingPoint’s Federal Services business last year and as you might imagine it’s mostly a glowing piece about various aspects of the deal.

These include revenue growth “The company posted about $1.65 billion in federal revenue this year — up from combined revenue of about $1.43 billion before the acquisition,” the increase in headcount, “Deloitte hired close to 1,400 people, and the firm is now planning to add 160 to 170 more per month,” and expansion of services, “Deloitte had a more expansive set of services and products than BearingPoint — including tax, audit and consulting services — but BearingPoint, with more than 35 years in the federal business, had access to a larger set of clients.”

Sounds swell but there are some loose ends to tie up, most notably the trustee of BearingPoint’s liquidating trust is sending letters to former BearingPoint employees under the Deloitte roof to get some cash back for expenses that were deemed unnecessary for doing typical business in DC Metro:

John DeGroote, whose firm serves as trustee to BearingPoint’s liquidating trust, confirmed his company is now trying to reclaim BearingPoint expenses that were improperly reimbursed — either because the expense should not have been reimbursed or because the employee did not provide the right documentation.

The trust has sent out between 400 and 500 letters to former BearingPoint employees seeking $750,000 in expenses, $250,000 of which has already been returned, DeGroote said.

Since the “the expense should not have been reimbursed or because the employee did not provide the right documentation” you can safely assume that these were the standard three martini lunches at the District’s finer establishments, rub ‘n tugs and other expenses that would normally be a-okay but less-so when a rival buys you out.

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