In a major jolt to the Public Company Accounting Oversight Board, three former staff accountants have been accused of leaking confidential information to KPMG partners so the firm could perform better on inspections of its audits.
The U.S. Securities and Exchange Commission said the information disclosed by the three — Brian Sweet, Cynthia Holder, and Jeffrey Wada — included the KPMG audit engagements that the PCAOB planned to inspect, the criteria the board used to select engagements for inspection, and the focus areas of the inspections.
“This was valuable information to KPMG, which had experienced a high rate of audit deficiency findings and had made a priority of improving its PCAOB inspection results,” the SEC noted in an administrative order.
Both Sweet and Holder left the PCAOB in 2015 for jobs at KPMG. Sweet’s supervisors at the firm, David Middendorf and Thomas Whittle, along with another partner in that office, David Britt, have also been charged in the case.
“As alleged, these [defendants] engaged in shocking misconduct — literally stealing the exam — in an effort to interfere with the PCAOB’s ability to detect audit deficiencies at KPMG,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a news release.
“The PCAOB inspections program is meant to assess whether firms are cutting corners, compromising their independence, or otherwise falling short in their responsibilities,” he added. “The SEC cannot tolerate any scheme to subvert that important process.”
The scheme allegedly began in April 2015 when Sweet allegedly downloaded confidential and sensitive PCAOB inspection-related materials that he believed might help him in his new job at KPMG. According to the SEC, the firm had recruited him at a time when it had a high rate of audit deficiencies — nearly half the audits inspected in 2013 were found deficient.
Sweet allegedly continued to gain access to confidential PCAOB information from Holder and, after she joined KPMG, from Wada.
“After Wada sent Holder the list of the PCAOB’s planned inspections for 2016, Middendorf, Whittle, Britt, Sweet, and Holder undertook an effort to analyze and review audit workpapers and to suggest revisions to them to avoid possible findings of deficiencies by the PCAOB,” the SEC alleged.
The six defendants have either resigned or were fired by the PCAOB and KPMG. They are also facing parallel criminal charges.
Sweet has agreed to a settlement with the SEC that bars him from appearing or practicing before the commission as an accountant.
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