The Public Company Accounting Oversight Board (PCAOB) sanctioned KPMG Accountants N.V. and its former head of assurance, Marc Hogeboom, for violations of PCAOB rules and quality control standards.
The violations relate to the firm’s internal training program and the monitoring of its system of quality control. Specifically, the PCAOB found that widespread improper answer sharing occurred at the firm over a five-year period. It also found that the firm made multiple misrepresentations to the PCAOB about its knowledge of the misconduct.
The sanctions imposed include a $25 million civil money penalty on KPMG Netherlands, which is the largest fine the PCAOB has ever imposed. It also includes a permanent bar and $150,000 civil money penalty on Hogeboom.
The investigation was conducted by the PCAOB and the Dutch Authority for the Financial Markets (AFM).
“The PCAOB will not tolerate cheating nor any other unethical behavior, period,” PCAOB Chair Erica Williams said. “Impaired ethics threaten the investor confidence our system relies on, and the PCAOB will take action to hold firms accountable when they fail to enforce a culture of honesty and integrity. I thank the Dutch Authority for the Financial Markets for its cooperation in the investigation of this matter and applaud the enhanced supervision measures it has taken to hold the firm accountable going forward.”
As described in the PCAOB’s orders, from 2017 to 2022, hundreds of professionals at KPMG Netherlands engaged in improper answer sharing in connection with tests for mandatory firm training courses. This was done either by providing access to test questions or answers, or by receiving such access without reporting it.
These courses related to a variety of topics, including U.S. auditing standards, professional ethics, and independence. The improper answer sharing reached as far as partners and senior firm leaders, including Hogeboom, who, at the time, was the firm’s head of assurance and a member of the firm’s management board.
The growth of this widespread answer sharing was enabled by the firm’s failure to take appropriate steps to monitor, investigate, and identify the potential misconduct. For example, the firm was aware that answer sharing had occurred at a KPMG service delivery center serving KPMG Netherlands and KPMG LLP (United Kingdom) starting in June 2020. Nevertheless, KPMG Netherlands took virtually no steps to investigate potential answer sharing among its personnel until a whistleblower reported such misconduct in July 2022.
During the PCAOB’s investigation, the firm submitted – and failed to correct – multiple inaccurate representations to the PCAOB. The firm claimed that it had no knowledge of answer sharing by its personnel until it received the July 2022 whistleblower report. These submissions were false because members of those two boards had themselves already engaged in answer sharing misconduct before July 2022.
“Today’s orders should send a signal to firms and their leadership that they have a responsibility to set an appropriate tone at the top, particularly with regard to issues of integrity and personnel management,” Robert Rice, Director of the PCAOB’s Division of Enforcement and Investigations, said.
Without admitting or denying the findings, the firm and Hogeboom consented to the PCAOB’s respective orders against them.