The Securities and Exchange Commission has announced it will charge two KPMG auditors for failing to act on a number of red flags that could have caught an estimated $30 billion accounting fraud sooner.
The auditors worked for international food retailer Royal Ahold NV. The company's U.S. Foodservice unit distributes food to military bases, civil governments, restaurants and caterers. The company allegedly inflated its earnings by improperly booking revenue from joint ventures. In October 2004, Ahold reached an accord with the SEC and avoided paying any fines, though it did pay $1.1 billion to settle a shareholder lawsuit in November.
The SEC will bring charges against KPMG partner Kevin Hall and senior manager Rosemary Meyer. The agency said that even though both auditors identified or had evidence of accounting problems with U.S. Foodservice's 1999 financial statements, they ignored irregularities and failed to clarify inconsistencies or bring problems to the attention of the company's audit committee. Both accepted assurances from management at the unit that a number of promotional rebates had been properly accounted for.Hall and Meyer were also accused in connection with the ir review of a supply contract for U.S. Foodservice's 2000 second quarter.
