U.S. audit regulator Public Company Accounting Oversight Board (PBOAC) imposed a record $25 million fine on audit and tax services company KPMG after several professionals at the firm were found to have cheated during internal exams, with the company allegedly being silently complicit in such practices.
“From 2017 to 2022, hundreds of professionals at KPMG Netherlands engaged in improper answer sharing” in tests conducted for the firm’s mandatory training courses, PCAOB said in an April 10 press release. The courses covered a variety of topics, including U.S. auditing standards and professional ethics. The exam cheating also involved partners and senior firm leaders, including Marc Hogeboom who at the time was KPMG’s Head of Assurance and a member of the management board, PCAOB said.
“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.”
KPMG agreed to pay a $25 million civil money penalty, the largest fine that PCAOB has ever imposed. It agreed to review and improve the company’s quality control policies to ensure that KPMG personnel act with integrity. The firm also agreed to report its compliance on these matters to PCAOB.
Mr. Hogeboom was permanently barred from being an associated person of a registered public accounting firm. He agreed to pay $150,000 in fines. Neither KPMG nor Mr. Hogeboom admitted or denied the findings made by the U.S. audit regulator.
“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.”
PCAOB pointed out that KPMG was aware of answer-sharing practices at a service delivery center serving the Netherlands office as early as June 2020.
“Nevertheless, KPMG Netherlands took virtually no steps to investigate potential answer sharing among its personnel until a whistleblower reported such misconduct in July 2022.”
When PCAOB started investigating the matter, KPMG made “multiple inaccurate representations” in its submissions, including claiming it had no knowledge of answer sharing by the firm’s personnel until the whistleblower report in July 2022.
However, PCAOB dismissed the claims as false because members of the company’s management and supervisory boards, who reviewed the submissions, “had themselves already engaged in answer-sharing misconduct before July 2022.”
Such inaccurate representations “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.”
KPMG Position, Exam Cheating Incidents
In a press release explaining the PCAOB action, KPMG said that over 500 people at the firm were involved in some sort of improper conduct, “including sending or receiving answers to training tests and providing or receiving assistance in taking such tests.”After the PCAOB investigation, KPMG sanctioned people at “all levels of seniority” who took part in answer-sharing. Some of them subsequently left the firm.
Members of the management and supervisory boards were subjected to “additional personal investigation” which looked at their involvement in the matter. “The chairman of the Supervisory Board resigned after admitting that he had received assistance in completing a training test,” KPMG stated.
The company said it took several remedial measures and is working to improve policies and procedures related to mandatory training as well as internal culture. This process is being carried out under the “enhanced supervision” of AFM, the Dutch authority for financial markets.
“The conclusions are damning, and the penalty is a reflection of that. I deeply regret that this misconduct happened in our firm. Our clients and stakeholders deserve our apologies. They count on our quality and integrity as this is our role in society, with trust as our license to operate,” said Stephanie Hottenhuis, CEO van KPMG Netherlands.
This isn’t the first time that KPMG has been fined by PCAOB. Back in December 2022, the regulator imposed $7.6 million in fines on three KPMG affiliates located in India, Colombia, and the United Kingdom. The fines were imposed after PCAOB found KPMG violated auditing standards and ethical regulations.
Earlier in 2019, the U.S. Securities and Exchange Commission (SEC) charged KPMG $50 million in fines for illicit use of PCAOB data as well as cheating on training exams.
“Numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results,” SEC said at the time.
Besides KPMG, PCAOB fined Deloitte branches in the Philippines and Indonesia $1 million each on April 10 for exam cheating incidents.
“As of today, the PCAOB has imposed $34 million in penalties this year alone, and it’s only April. We set a record in 2022. We broke that record in 2023. And we are breaking it again today,” she said. “Since 2021, the PCAOB has sanctioned nine registered firms for exam cheating.”
“Let today’s news be a clear warning to those who break the rules—if you put investors at risk, there will be consequences.”
