U.S. Sens. Elizabeth Warren (D-MA) and Edward Markey (D-MA) raised questions to the Public Company Accounting Oversight Board (PCAOB), a federal watchdog entity, about KPMG’s oversight of Wells Fargo during the time it was involved in fraudulent activities.
“KPMG, in its role as Wells Fargo’s independent auditor, failed to prevent or even publicly disclose the fraud that affected hundreds of thousands of customers, and cost the company CEO his job,” the senators wrote to PCAOB, which sets standards for audits of public company financial statements. “In response to questions about this failure, KPMG denied any wrongdoing, standing by their conclusion that Wells Fargo – during the entire time the scandal was ongoing – ‘maintained … effective internal control over financial reporting.'”
Wells Fargo was hit with a fine by the Consumer Financial Protection Bureau last fall for opening 2.1 million accounts in customers’ names without their permission. CEO John Stumpf resigned as a result and the matter remains under investigation by the California Department of Justice.
Last October, Warren and Markey, along with Sens. Bernie Sanders (I-VT) and Mazie Hirono (D-HI) sent a letter to KPMG asking why the firm, as auditor, failed to detect the fraudulent activity and gave Wells Fargo clean reports.
The response, according to Warren and Markey, revealed three new findings. First, KPMG was aware of the illegal activity years prior to the CFPB and DOJ settlement. Second, Wells Fargo’s Board had extensive knowledge of the wrongdoing (and that KPMG was aware of this knowledge). Third, KPMG’s claim that “the improper sales practices do not implicate the effectiveness of internal controls over financial reporting” conflicts with the recent findings of Wells Fargo’s independent Board members’ investigation. That investigation found that the problem was caused by the bank’s basic corporate structure and its top executives’ misconduct.
In the letter, the senators asked whether PCAOB has conducted a review of KMPG’s financial reporting, if the auditor’s decisions were consistent with PCAOB rules and guidance, and if PCAOB updated its guidelines following the Wells Fargo crisis. They also asked if PCAOB rules and guidance hold auditors responsible for reporting illegal or inappropriate activity by their clients.