SEC charges three former KPMG partners for exam misconduct
The Securities and Exchange Commission announced on Tuesday settled charges against three former KPMG audit partners for sharing answers to internal training exams, as well as wrongdoing during an investigation of exam-sharing misconduct at the Big Four firm.
According to the SEC, former KPMG audit partners Timothy Daly, Michael Bellach and John Donovan each partook in misconduct with exams KPMG administered to test audit professionals' ability to understand certain accounting and auditing principles.
The orders against Daly and Bellach concluded that in October 2018, at Daly’s request, Bellach texted Daly images of the answers to a training exam. After KPMG began investigating, Daly deleted the text messages from Bellach and falsely informed KPMG investigators that he had not received any answers to the KPMG training exams. The orders further found that Daly encouraged Bellach to delete the text messages, which Bellach did after receiving KPMG’s document preservation notice.
The order against Donovan finds that he too shared exams and answers within his team. According to the order, Donovan received answers to training exams between April and September 2018 from subordinates multiple times, and shared answers with his team three times. Donovan also falsely told KPMG investigators that he had not sent, received or shared these answers.
“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, in a statement. “These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.”
The SEC previously charged KPMG with violations concerning the exam sharing misconduct, as well as for altering past audit work after receiving stolen information on inspections conducted by the PCAOB.
"The actions against individuals who were separated from our firm more than a year ago was an expected development following the firm’s settlement with the SEC last June," said a KPMG spokesperson in a statement. "We are a stronger firm as a result of the actions we are taking to strengthen our culture, governance and compliance program. We are committed to delivering the highest quality professional services and fulfilling our important role in the capital markets."
The SEC’s orders found that the former KPMG audit partners’ conduct violated a PCAOB rule requiring them to maintain integrity in the performance of a professional service. Not admitting or denying the findings, Daly, Bellach and Donovan agreed to a suspension 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.