PCAOB fines former KPMG vice chair $100K

The Public Company Accounting Oversight Board levied a $100,000 fine against Scott Marcello, the former vice chair of audit at KPMG LLP, in the PCAOB’s largest monetary penalty ever in a settled case against an individual.

The case goes back to 2016 when the PCAOB revealed that several KPMG auditors had been sharing confidential information about an upcoming inspection with the help of former PCAOB employees who had gone to work at the firm, as well as sharing test answers for the firm’s own internal training exams. The case led to a shakeup at both KPMG and the PCAOB. In 2017, Marcello and four other partners left the Big Four firm (see story). In 2019, KPMG agreed to pay a $50 million penalty to the Securities and Exchange Commission (see story). Also that year, a New York jury convicted two former PCAOB and KPMG officials, and one even received a one-year prison sentence.

The PCAOB’s order Tuesday censuring Marcello found that he failed to reasonably supervise KPMG personnel who engaged in the scheme to improve the firm’s PCAOB inspection results. The matter is the first in which the PCAOB has imposed sanctions for a failure reasonably to supervise, although the Sarbanes-Oxley Act of 2002 authorizes the PCAOB to do so.

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“This ‘first of its kind’ disciplinary action demonstrates that the PCAOB is committed to sanctioning top-level personnel at the largest firms when they fail to take sufficient supervisory steps aimed at preventing violations by their subordinates,” said PCAOB chair Erica Williams in a statement Tuesday. “Following the Department of Justice’s and the Securities and Exchange Commission’s actions against the perpetrators of the scheme, the board believes it is important to hold Mr. Marcello accountable as their supervisor for contributing to a culture that led to this serious misconduct.”

The PCAOB found that, among other failures, Marcello failed to take appropriate action when he was informed by a subordinate, in early 2016, that people under his supervision had obtained highly confidential PCAOB information, which he understood had come from within the PCAOB. Marcello did not admit to or deny the findings in the order.

“Knowing that his subordinates may have been involved in unethical or illegal behavior, Mr. Marcello failed to take steps required of someone in his position,” said Patrick Bryan, director of the PCAOB’s Division of Enforcement and Investigations, in a statement. “This action sends a strong message that firm leadership must take their supervisory responsibilities seriously.”

KPMG has taken steps in recent years to address the problems. “We are a stronger firm as a result of the actions taken since 2017 to strengthen our culture, our governance and our compliance program,” the firm said in a statement forwarded by KPMG spokespeople. “Integrity and quality are paramount for KPMG, including operating with the utmost regard for the critical importance of the regulatory process to our profession.”

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