KPMG slammed for scapegoating junior auditor
A £14m fine for lying to regulators may be eclipsed by the credibility and morale hit KPMG will take for its role in the collapse of Carillion.
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“I struggle to see how the junior didn't see anything wrong with it,” said Dan Dudley of Solid Bond Capital Limited. “Fault is absolutely on the senior auditors, but if you've been asked to type up handwritten notes on a document that was quite fundamental to an audit, I’d be asking some questions.”
Nonsense. There have been numerous psychological studies confirming that junior people will do without question whatever they are ordered to do by those in authority, even if it seems totally wrong and daft. See:
https://en.wikipedia.org/wiki/Milgram_experiment
Look at old air accident reports concerning bullying captains barking daft dangerous orders to co-pilots that result in crashes if you need proof of that and it's why the airline industry no longer tolerates such bullying loose cannons to be in charge of important things like flying planes and the same approach should apply to audit firms, so that firms incentivize juniors to point out such problems rather than punish them or make it a thankless task as is presently the case.
Could not agree more, what was the junior supposed to do? Presumably Dan Dudley expects audit trainees to take handwritten notes from their boss and question them as to whether they have in fact been falsified, seek additional evidence to prove they're not lying and, if evidence is insufficient, refuse to type them up.
I'd rather see the trainee's fines and sanctions added to whomever told him to do it for bringing in someone with no agency to this mess. I have absolutely no doubt the trainee was only involved because it would have looked weird if one of the seniors was typing meeting notes.
Agreeing with Justin for once. As a PQ at KPMG in the 90's ie 2 years out of uni, I reckon I would have done as I was told. Whislt I would hopefully have recognised the fact I ought not be doing it. I wouldn't have been mature enough or had the social skills to question the instructions given or push the responsibility up the chain.
Gosh, at 25 I would absolutely do whatever it was my boss of the day was asking. Can't recall anything specific, more dramatic than reporting lower photocopy numbers to the vendors etc, but, even so.
Where did vicarious liability go?
I would not be recommending my child embark on training with this risk. Albeit she is 15 and has vowed never to work in an office :)
All this highlights is the poor training at these big firms and clearly per numerous investigations the absolute nonsense they put out for work!
There is no way the junior should have even been in the firing line, if he HAS BEEN TOLD by a senior these minutes were taken AT the time can you please type them up so they are clear to read then the people telling him should be the ones fined and sacked.
Every single one of these investigations just seems to end in loads of backscratching and slinking into the shadows whilst people who don't make the decisions take the brunt.
The more I think about it the more the "Big 4" resemble politics and the chancers involved.
Hammering those least able to take the hit is now the norm in this country, unfortunately. The £50K fine should be levied on the senior member of staff who instigated this fraud, not the virtually powerless individual instructed to carry it out. Justice? I don't think so.
Agree with the other comments. And even if this particular junior did question it, it'll likely have been verbally not by email. No-one records every verbal discussion with another member of staff because if you did you'd never get any work done.
It is concerning how this one trainee appears to have been singled out, given that by the sounds of the scale of the wrong-doing along with the size of the audit team, more than one trainee most likely did something that contributed.
Experience I’ve had of external auditors in the recent decade or so indicated major blunders ‘hidden’ as necessary updates based on revised accounting recommendations (false) or outright error adjustments from previous years.
Deferred tax, investments & depreciation were the recalcitrant areas!
The ICAEW should carry out a survey of trainees at the Big 4.
Starting with KPMG.
Sue Gray may be available to conduct this task with vigour and independence .
She may be available next week.
I am appalled that a p/q should have this dumped on them. I agree, if a Senior gave a p/q some notes to type up, that is exactly what they would do. They would not ask anything about the meeting, just put the notes into a semblance of a professional form for the record (which is why the task was not given to one of the secretaries/typists). If the junior questioned it, more than likely next promotion/bonus/payrise would be in jeopardy and certainly the next invite to a client development meeting or similar for good behaviour and a chance to shine.
It is obviously very difficult for a young trainee to query instructions from senior managers, the consequences would most likely be severe and career limiting, but I think the FRC is making the point that they should regardless if what they are being told to do is unethical. I don't see how they could conclude otherwise.
Many decades ago as an articled clerk in Liverpool I occasionally reported to a certain qualified ‘manager’ whose favourite trick was to rewrite perfectly ‘fair’ drafts in his own hand to then present them as his work to the 10 partners.
His undoing was intercepting an urgent note I’d left for my principal one day, placing it in the bin of the adjacent partner’s office and hoping the whole matter would die a death.
He failed to reckon with the perseverance of a senior articled clerk who asked his principal if he’d got my note, knowing full well that he hadn’t, then producing the ‘crumpled evidence’ as proof.
Strange that very soon after the noxious manager departed to a stockbroker his wife’s father managed.
Point is that senior managers have tended to get away with serious blunders but only the few ever call them out.
Similar experiences later from two years with provincial offices of the the ‘big 6’ but enough for now.
Surely the FRC have a remit to reach equitable decisions, which this case plainly isn't? They could still make the point, but fine those actually responsible rather than the cannon fodder easy target at the bottom of the food chain. It doesn't surprise me though, because power and privilege counts more than anything on this insular little island nowadays.
How was the trainee to know it was unethical, if he was only being asked to make fair copies of notes of a meeting?
I trained with KPMG quite a few years ago. Out on my first audit I was checking sales invoices (all of the two required by the audit programme). I found what I thought was an error and brought this to the attention of the audit senior on the job. I was told to forget it and check another invoice!
Yes; I should imagine that corresponds with most people's experience of auditing for the reasons given by me above i.e. dysfunctional incentives.
All this guff about prohibiting audit staff from having shares in the audit client etc. is basically of no relevance compared to that main problem point re wrong incentives (and disincentives whereby staff who correctly spend more time investigating problems thereby exceeding audit fee budgets are punished, so that profits are prioritized over audit care & quality) and the more obvious financial conflict of interest re audit fees generally (i.e. he who pays the piper etc.).
The "he who pays the piper" conflict of interest problem is also evident in the sphere of expert witnesses, who are supposed to be independent of their instructing clients but of course aren't. See: https://www.lawgazette.co.uk/news/partisan-experts-can-be-fatal-supreme-...
I trained with KPMG quite a few years ago. Out on my first audit I was checking sales invoices (all of the two required by the audit programme). I found what I thought was an error and brought this to the attention of the audit senior on the job. I was told to forget it and check another invoice!
You must have come later than me. We were on 10, and it was cut to 5 about mid training. And with the same instruction, "pick better" if it didn't work.
When auditing I had a knack for selecting questionable transactions & was invariably instructed to ‘choose another one’ & move on by seniors & or managers.
Not a trainee but 2 years with E&Y post qual. with the two laziest managers from Manchester - exactly the same experience, repeatedly.
This is a recurring theme. I was also told to do this on audits when I trained at a 5 partner firm.
Makes you think what else happens at KPMG on the quiet, could this be the tip of the iceberg .... who knows not me anyway.
That KPMG scapegoated a junior is wholly and unacceptably wrong. I also think that it is disgusting of the FRC to penalise a junior in this way when fault clearly lies a) with KPMG as an organisation for its pressure cooker culture and on the managers who asked him to do it.
The question which strikes me is how could I, were I a large plc, continue to have KPMG as my auditor when their inability to do an honest and competent audit has been so publicly displayed.
Shareholders should say so to their Directors.
I seem to think that HMG has just awarded KPMG a £10,000,000 contract. Obviously the Civil Servants involved don't read what the regulators say.
I have to agree with what others have said about KPMG - I worked for them for a while and it is quite true that they just didn't want to know about anything that didn't sit in the yes box of the audit program. This was in the days of PMM so obviously little has changed.
Sign of the times I suppose - Soon we'll be hearing about the UK oligarchs - pity it has to be our profession though that leads the way. I was always quietly proud to be a CA - shame really.
I've never trusted them since as Peat Marwick Mitchell they interviewed me for a graduate trainee job in 1977. I was told at said interview that the starting salary was £2000 and then that the ICAEW (or whatever they were called then) Student Society had calculated that the minimum salary a student could subsist on was £2100. While I was trying to recover from that statement I was thanked for attending the interview and told that all job offers had already been made. I had travelled from Durham to Cardiff (necessitating an overnight stay so I could get to the morning interview in time) at my own expense - no reimbursement offered. That was when I realised that trainees were just fodder.
I had worse- in April 1985 PKF offered me a training contract by letter, it was the Edinburgh office just up the road from our house, I accepted and stopped chasing a training contract elsewhere and concentrated on my final university exams instead.
Catch was I did not read small print, turned out they made more offers than places as some might fail exams/change mind etc . Come June they had withdrawn the offer and I was scrambling to land a TC before August, 100s of applications in the last few weeks.
Luckily Hodgson Impey Glasgow offered me a place just before the ICAS deadline otherwise I could have wasted a year.
I struggle to understand the logic behind the FRC's call for a £50,000 fine and a four year ban. That is effectively asking for an individual's career and livelihood to be destroyed for typing up a hand written document. For a start where is the perspective to the punishment? Also why should they consider it so important in the scheme of things when then were other far more serious failings, witness the claim for £1.3b. This suggests to me that the FRC are themselves indulging in a spot of bullying and are not having due regard for the position the p/q was placed in. Responsibility should rest with the person who issued the instructions and supplied the hand written notes.
So what has happened to the guy at the top who sanctioned this fraud. I bet his fine is a fraction of his 'annual salary'
I worked in a independent firm in the City of Leeds where a partner was dismissed for alleged back dating documents. Same day, the senior partner asked me to create share documents dated several years ago for his family's personal financial gain. You can't make this up!
It is becoming increasingly obvious that the buck doesn't stop where it should.
Perhaps we need to go back to the days when the appropriate reaction by the guilty would have been a loaded pistol, a bottle of whisky and a locked room.
Before people start getting their lingerie in a twist, that was tongue in cheek!
Before people start getting their lingerie in a twist, that was tongue in cheek!
Is that so the bullet has no obstructions in its path?
This is nothing short of a farce.
Poor Pratik Paw was clearly bullied by some unamed senior[s] into the faudulent action - irrespective of Dan Dudley's comments that he should have asked questions. Perhaps Dudley is in the fortunate position that bullying in the workplace is something he doesn't have to deal with. Or perhaps he just adopts the ostrich syndrome to such bastardised practice. Or perhaps his experience of so the so called ''Big 4 '' is non existant . I suspect the latter.
It's a shame this article didn't give more space to the extent of the KPMG seniors falsifying of documents and spreadsheet forgery , and their respective punishment .......If any.
I've said before ; KPMG has become another four letter word.
Worked at PW before it became PWC. On a train to Southampton to meet the team in charge of a group audit that I was part of as a senior auditing a subsidiary I worked out that there had possibly been an error in a grant release to P&L of around £1m. In Southampton the following morning I contacted the client employee responsible and asked him to check the figure. While waiting for a response from him, the internal grapevine went into action and it got back to the partner in charge from the group FD that the Accounts needed altering. Did that partner look for me to congratulate me. Think again. I was bollocked in front of the whole team. Apparently this was the first time the Accounts ever had to be changed. Says it all really.
So this has been the 'audit culture' for at least 25 years (and probably another 20+ years prior to that) which has lead to ...
... not the current state of auditing, but the current state of culture protection - as exemplified by the cosy relationships at the top and the piffling penalties for the partnerships (apart from when a junior sacrificial lamb is felt to be worthwhile)!
This proves that audit is useless and we should stop wasting our money on it. Why do people do these things? However, it does demonstrate why some Chartered Accountants don't make a successful move out of practice into commerce/industry. They bring their appalling management practices to commerce/industry and upset the whole accounting team in no time.
No surprise. Working for E&Y in Liverpool in the 70s the emphasis was more on social gatherings & conformity rather than expertise. Large provincial subsidiary audits only.
I was bollocked for reprimanding a by-age ‘older’ senior who was an ex-MOD ACA who took an inordinate time completing audit work I had covered previously in a quarter of the time, despite the matter being conducted privately after hours in an empty work environment.
I left professional office life not long after & spent the next enjoyable 47 years in commerce & the public sector.