US audit watchdog, the Public Company Accounting Oversight Board (PCAOB), has fined KPMG Australia $615,000 (US$450,000) after it was revealed that there was widespread cheating being done during online internal training tests conducted between 2016 and 2020.
KPMG discovered the irregularities in 2020 and made disclosures to regulators, including PCAOB and ASIC. Investigations revealed that 1,131 partners and staff were involved in what has been termed ‘improper answer sharing’ done to help colleagues pass tests. The offenders account for about 12% of KPMG Australia’s 6,700-strong workforce. The firm undertakes mandatory online training and testing that enables staff to further their professional development and satisfy continuing education requirements. The program covers such areas as accounting, auditing, and professional independence.
PCAOB found that the accounting firm failed to establish appropriate policies and procedures for administering the tests. The investigation revealed that the problem was widespread at all levels, with at least 277 staff found to have actively engaged in receiving or providing answers.
PCAOB however noted that the firm had demonstrated extraordinary cooperation on the issue. KPMG Australia was found to have acted with great integrity and intent for self-reporting and undertaking a program of remediation. The regulator confirmed that without this response the penalty imposed would likely have been higher and the board could have faced additional sanctions.
As a result of the cheating scandal, 2 partners at the firm have departed, while another 16 partners and 30 staff have had their pay docked. The remaining 1,083 have received either written or verbal warnings over their behaviour.
KPMG Australia CEO, Andrew Yates, expressed disappointment over the conduct and how it reflected on the firm. He reiterated their commitment to transparency and assured partners and clients that the behaviour was deemed unacceptable. He said that staff at the ‘big four’ firm were now absolutely clear on non-negotiable expectations of behaviour.
The censuring comes at a time when concern has been raised about auditing standards and independence amongst the big four accounting firms. Part of the training and testing related to professional ethics.
Yates affirmed that unethical behaviour had no place in the values-based culture of KPMG and that more emphasis would be placed on embedding behavioural expectations into scorecards to drive accountability. Since the investigation, KPMG Australia has introduced warnings on training and testing related misconduct and boosted its monitoring to prevent future incidents of the same behaviour. It has also required its partners and staff to undertake new independence testing.
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