The Securities and Exchange Commission has settled charges against three former KPMG LLP audit partners who allegedly shared answers to internal training exams and for subsequent wrongdoing during an investigation of exam sharing misconduct at the firm.
The SEC previously charged KPMG with violations concerning the exam sharing misconduct, as well as for altering past audit work after receiving stolen information about inspections that would be conducted by the Public Company Accounting Oversight Board. The PCAOB is a non-profit corporation established by Congress in the wake of the 2002 WorldCom and Enron financial scandals to oversee the audits of public companies and broker-dealers.
The SEC claims that former KPMG audit partners Timothy Daly, Michael Bellach, and John Donovan each engaged in misconduct in connection with exams KPMG administered to test whether its audit professionals understood certain accounting and auditing principles.
In October 2018, at Daly’s request, Bellach purportedly texted Daly images of the questions and answers to a required training examination. After KPMG began investigating possible cheating by its professionals and required strict compliance with a document preservation notice sent to all KPMG personnel, Daly allegedly deleted the text messages from Bellach and falsely told KPMG investigators he had not received any answers to KPMG training exams. The SEC alleges that Daly encouraged Bellach to delete the text messages as well, which Bellach did after receiving KPMG’s document preservation notice.
The SEC claims that Donovan supported the sharing of exams and answers within his team, and between April and September 2018, he received answers to training exams from subordinates on several occasions, and shared answers with his team three times. Donovan allegedly told KPMG investigators that he had not sent, received, or shared answers, the SEC said.
“Audit professionals play a critical role in the integrity of the financial reporting process and the protection of investors,” said Steven Peikin, co-director of the SEC’s division of enforcement. “These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.”
The SEC’s orders find that the former audit partners’ conduct violated a PCAOB rule requiring them to maintain integrity in the performance of a professional service. Without admitting or denying the findings, Daly, Bellach, and Donovan agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies, with the right to apply for reinstatement after three years, two years, and one year, respectively.