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Hundreds of employees at KPMG’s Dutch business, including senior partners and managers, falsified professional exams and the firm misled investigators about the misconduct, according to the U.S. regulator.
KPMG’s Dutch branch was fined $25 million by the Public Company Accounting Oversight Board on Wednesday, the largest fine in the U.S. audit regulator’s history.
The PCAOB also fined former KPMG Netherlands audit chief Marc Hogeboom $150,000 and banned him for life from working for a company that oversees U.S. public companies.
The findings are the latest ethics scandal to hit a Big Four accounting firm.
Investigators found that KPMG staff shared questions and answers to mandatory internal examinations regarding U.S. auditing standards, professional ethics and management of conflicts of interest over the course of at least five years through 2022. The conduct reached also partners and senior executives at the firm, including Hogeboom, the PCAOB said.
The regulator also said the Dutch company’s CEO Stephanie Hottenhuis learned that the company had submitted inaccurate information to PCAOB investigators but “did not inform anyone until months later.”
“This misconduct reveals an inappropriate tone at the top and a complete failure on the part of corporate leadership to foster an ethical culture worthy of investor trust,” said PCAOB Chair Erica Williams.
Cheating in internal exams has been a repeated problem among the big four accounting firms, all of which have now been fined for such activity. KPMG Netherlands’ misconduct continued for years after its US division was fined for fraud in 2019. KPMG’s businesses in the UK and Colombia were also fined.
EY paid a $100 million fine in 2022 for cheating hundreds of employees in the United States and for failing to quickly admit the matter to its regulator.
The PCAOB on Wednesday also fined Deloitte’s businesses in the Philippines and Indonesia $1 million each for sharing answers on professional tests.
As cheating continues to be exposed years after the first complaint, Williams said the PCAOB launched a “cultural review” of some auditors to find out whether a poor tone at the top was contributing to the misconduct. She said whistleblowers could contact the PCAOB directly, in addition to going through internal channels.
The enforcement action against KPMG is the result of a joint investigation by the PCAOB and the Dutch Authority for the Financial Markets (AFM), which will place the firm under enhanced supervision in the Netherlands.
“This is a KPMG issue, but it is not just a KPMG issue,” said AFM board member Hanzo van Beusekom. “It’s a global issue and something that the accounting profession as a whole needs to look in the mirror at and take note of how this behavior may develop.”
KPMG Netherlands said staff and partners who participated in sharing responses were sanctioned and some left the company. It also put in place controls to monitor whether training tests were completed appropriately.
In a statement, Hottenhuis said: “The conclusions are damning and the penalty is a reflection of that. I deeply regret that this misconduct occurred in our company. Our customers and stakeholders deserve our apologies.”