Elizabeth Warren questions PCAOB about KPMG audits of Wells Fargo
Senators Elizabeth Warren, D-Mass., and Edward Markey, D-Mass., have written to the Public Company Accounting Oversight Board, raising questions about KPMG’s audits of Wells Fargo during the time the banking giant was setting up millions of extra accounts for customers, often without their knowledge, because of sales incentives for the bank's employees.
In a letter Tuesday to PCAOB Chairman James Doty, the senators asked whether the PCAOB has conducted a review of KPMG’s financial reporting, if the auditor’s decisions were consistent with PCAOB rules and guidance, and if the PCAOB updated its guidelines following the Wells Fargo crisis. The senators also asked if PCAOB rules and guidance hold auditors responsible for reporting illegal or inappropriate activity by their clients.
“Has the PCAOB conducted any review of KPMG’s conclusions with regard to its conclusions about Wells Fargo’s financial reporting from 2011-2015?” they wrote. “If so, what were the findings of these reviews?”
Last September, the Consumer Financial Protection Bureau fined Wells Fargo $100 million for opening approximately 1.5 million deposit accounts and 565,000 credit card accounts that may not have been authorized by the bank’s customers. Warren helped the Obama administration set up the Consumer Financial Protection Bureau after passage of the Dodd-Frank Act of 2010.
Warren and Markey, along with their colleagues Senators Bernie Sanders, I-Vt., and Mazie K. Hirono, D-Hawaii, wrote to KPMG last October about the matter. The lawmakers asked KPMG how the firm failed to detect wrongdoing at Wells Fargo, and why it issued clean audit opinions for five years in a row.
In a November response, KPMG admitted it had been aware of the issue, but claimed “the improper sales practices do not implicate the effectiveness of internal controls over financial reporting” and therefore did not report it or address the matter in its audit work. However, Warren and Markey contend that KPMG’s claims conflict with the recent findings of Wells Fargo's independent board members' investigation, which found the problem was caused by the bank’s basic corporate structure and its top executives’ misconduct.
“KPMG, in its role as Wells Fargo's independent auditor, failed to prevent or even publicly disclose the fraud that affected hundreds of thousands of customers, and cost the company CEO his job,” the senators wrote. “In response to questions about this failure, KPMG denied any wrongdoing, standing by their conclusion that Wells Fargo—during the entire time the scandal was ongoing—‘maintained ... effective internal control over financial reporting.’”
The senators are now raising the matter with the PCAOB, which said it is reviewing the matter. “We appreciate the Senators’ continued interest in the important investor protection mission of the PCAOB’s oversight of auditors of public companies,” said PCAOB spokesperson Colleen Brennan. “We look forward to reviewing and responding to their letter.”
KPMG defended its audits. “As referenced in our response to the Senators’ October letter, KPMG takes very seriously its role as independent auditor, and we are confident that our audits and reviews were appropriately planned and performed in accordance with applicable professional standards,” said KPMG spokesperson Manuel Goncalves. “Beyond that, our response letter stands on its own, and we have nothing further to add.”