Professional regulator blasts ‘shocking’ delay in KPMG cheating probe
The head of the agency that regulates Chartered Accountants ANZ is weighing disciplinary action after the “shocking” delay of more than 18 months in the decision to investigate cheating in exams by KPMG Australia personnel.
Roxane Marcelle-Shaw, the chief executive of federal regulator Professional Standards Authority.
The frank critique of the nation’s main professional body for accountants was contained in an internal email to staff from Roxane Marcelle-Shaw, the chief executive of federal regulator Professional Standards Authority.
Despite telling her colleagues that CA ANZ’s inaction was a “trigger” for intervention, the authority is now simply monitoring the accounting body’s review into itself.
CA ANZ eventually kicked off an investigation into the cheating – more than 1½ years after being informed of the allegations – in the same month it received the “please explain” letter from Ms Marcelle-Shaw.
“That is shocking,” Ms Marcelle-Shaw wrote to colleagues at the Professional Standards Authority in response to an article in The Australian Financial Review about the delayed response by CA ANZ to the cheating.
It is also a trigger for risk assessment by all three accounting profession associations. At scale in a firm as large as KPMG, there is potential contagion. We will need to consider supervision action,” she wrote in the September 2021 email.
A separate letter, which asked CA ANZ to explain what it was doing about the cheating that was identified by a US regulatory body, is part of a tranche of heavily redacted documents released by the Professional Standards Authority after an NSW government information (public access) request. A similar request was sent to rival accounting bodies CPA Australia and the Institute of Public Accountants.
Cheating a ‘clear breach’ of code of ethics
Another document revealed that the regulators believed the cheating was a “clear breach” of the code of ethics for professional accountants “which states that accountants must act with integrity and must avoid any conduct that might discredit the profession”.
“The Chartered Accountants website states: ‘Our members are held accountable to the principles set out by the codes of conduct and professional standards’. Failure to meet the standard may result in disciplinary proceedings, with outcomes ranging from cautions, suspensions, and expulsions,” one document states.
Last week, the accounting body disclosed that just eight of its members would be formally sanctioned – by having a secret note attached to their member records and being forced to pay back the costs of the investigation – regarding the systemic cheating over at least five years until early 2020 on courses about independence, audit and accounting rules. Four members were cleared of wrongdoing.
This came after US audit watchdog, the Public Company Accounting Oversight Board (PCAOB), fined KPMG Australia $US450,000 ($661,229) over the cheating. As part of the fine, the PCAOB issued a detailed report, which stated that the cheating had continued for at least five years until early 2020 and involved 18 partners and more than 1100 staff.
CA ANZ, a professional body that represents and trains corporate auditors, also announced last week that it had launched a review into its academic integrity processes in response to the matter. It is regulated by the Professional Standards Councils and its agency, the Professional Standards Authority, and, as part of the arrangement, is obligated to discipline its members.
CA ANZ response ‘embarrassing’
A spokesman for the Professional Standards Councils said it would take CA ANZ’s actions into account when the accounting body next applied for a professional standards scheme. The scheme gives CA ANZ the responsibility to regulate the industry and discipline members in exchange for legal liability limits.
“The councils remain concerned about the conduct identified by the US Public Company Accounting Oversight Board. We have corresponded and met with CA ANZ on several occasions in relation to the matter since September 2021,” the spokesman said.
“The councils’ role is to ensure associations with approved professional standards schemes, such as CA ANZ, have systems in place to implement risk management strategies in respect of their members.
“We have had ongoing contact with CA ANZ in relation to risk management, including a recent verbal briefing on its professional conduct framework review. The councils will monitor the outcome of this review and have regard to it in the association’s reporting and when considering CA ANZ’s next application for a professional standards scheme.”
CA ANZ members have called its response to the cheating weak and embarrassing in posts on business networking site LinkedIn.
Chartered accountant Paul Meissner.
Chartered accountant Paul Meissner said its actions were a “disgrace” and showed CA ANZ was incapable of policing the behaviour of members who worked at the big four consulting firms.
“CA are a disgrace and have shown that they lack the ability to uphold the ethics of their members in the big firms. Small firm members would get crucified for behaviour half as bad,” he said in a post.
Mr Meissner, the chief compliance officer at 5ways Group Chartered Accountants, told the Financial Review he did not understand how CA ANZ had decided to only investigate 12 individuals out of hundreds implicated.
“In light of the lack of any tangible penalties issued by CA, what is their role, if any, in upholding the ethics of the profession?” he asked.
Chartered accountant Rob Naudi.
In another post, chartered accountant Rob Naudi said he was embarrassed to be a member of CA ANZ.
“A sad day that the firm receives a caution, every member found to have cheated should be expelled and named and fined, no ifs, no buts. I am embarrassed to be a CA,” Mr Naudi, an executive director at insolvency firm Rodgers Reidy, posted on LinkedIn.
I sincerely look forward to the day I can walk away from 27 years of membership of the CA thereby alienating myself from the stigma of such poor decisioning and lack of integrity demonstrated by the CA ANZ.”
Tony Alizzi, the member who put the most pressure on the accounting body to take action on the cheating, said CA ANZ’s disciplinary actions were “far below expectations”.
“Utterly disgraceful CA ANZ. 422 of your members were caught cheating on ethics exams, but only eight face any disciplinary action ... and now you’re writing to members today announcing a Professional Conduct Framework Review admitting you were never equipped to handle the KPMG scandal in the first place,” he wrote on LinkedIn.
CA ANZ: ‘We understand member frustration’
CA ANZ had earlier said 422 members were involved in the systematic cheating but decided to investigate only 12. It said 410 did not meet the threshold for further action under the code of ethics and CA ANZ by-laws. CA ANZ also decided that the sanctions and remedial actions already applied by KPMG Australia in response to the PCAOB findings were sufficient.
CA ANZ has refused to reveal the names of the eight sanctioned members; KPMG Australia would not disclose if any of the eight were still at the firm.
A spokesman for CA ANZ said its “by-laws are very clear about the confidentiality of proceedings before the independent Professional Conduct Committee”.
“This matter was heard by the PCC and so while CAANZ can provide comment on the outcome of the process, we are not privy to and cannot disclose any other details (including about individuals and sanctions),” he said in a statement.
“We understand member frustration when issues like this occur. The professional conduct review provides an opportunity to consider the balance between the right to due process and confidentiality alongside protecting the public perception and reputation of the CA designation. We look forward to member engagement and feedback through this process.”
KPMG exam cheating scandal
March 2020
KPMG retakes independence exam amid cheating scandal The firm’s 600-odd partners and more than 5900 staff will resit an internal independence exam after a probe into cheating on the annual assessment.
September 2021
KPMG fined $US450,000 over ‘widespread’ exam cheating The US audit watchdog has fined KPMG Australia after staff were found to have cheated on integrity and skills tests for about five years.
Accounting body in go-slow on KPMG cheating scandal The main professional body for accountants has yet to investigate or take any disciplinary action against KPMG Australia partners or staff over “systemic” exam cheating.
Test at centre of KPMG cheating scandal was open book The annual independence exam at the centre of the long-running and widespread cheating at KPMG operated as an open-book test where searching the internet for answers was allowed.
October 2021
Accounting group belatedly launches KPMG cheating probe Chartered Accountants ANZ has begun its investigation more than 18 months after first being told about the misconduct.
December 2021
ASIC reluctant to highlight lack of power in KPMG cheating case The corporate watchdog was concerned about perceptions that it lacked the power to issue sanctions for systemic, ongoing cheating uncovered at KPMG, internal documents show.
April 2022
Chartered Accountants may only discipline 12 of 422 KPMG cheaters Only 12 of the 422 KPMG staff who took part in systemic exam cheating will be put through the professional body’s individual disciplinary process.
July 2022
KPMG accountants cautioned over systemic exam cheating The accounting industry body issued eight KPMG staff with a caution over the offences, which involved more than 1100 people at the firm.
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