Senators Question KPMG’s Role in Wells Fargo Scandal

U.S. senators are asking the PCAOB to look into KPMG’s role in the Wells Fargo scandal after they discovered the firm knew the company had fake accounts on the books, Compliance Week reported.

Massachusetts Democrats, Sens. Elizabeth Warren and Edward Markey conducted their own inquiry into the scandal and found that both KMPG and the Wells Fargo board of directors were aware of the false accounts, but the Big 4 firm didn’t flag it because it wasn’t considered relevant to its audit of the financial statements.

In a letter to the PCAOB, they say:

  • KPMG “became aware of and analyzed in detail” the production of false accounts at Wells Fargo,
  • the Wells Fargo board knew of the activity, and KPMG knew the board knew, and
  • KPMG concluded the improper sales practices did not implicate the effectiveness of internal controls over financial reporting.

Warren, Markey and two other senators wrote to the firm in October to ask how Wells Fargo could have been given clean audit opinions from 2011 to 2015 “while failing to notice fraud and mismanagement affecting millions of customer accounts perpetrated by thousands of bank employees that led to billions in lost market capitalization,” Compliance Week reported. The senators say KPMG responded the next month by saying it new of the false accounts, but found the misconduct “did not implicate any key control over financial reporting and the amounts reportedly involved did not significantly impact the bank’s financial statements.”

According to the senators’ account of KPMG’s response, the firm says it knew of false account activity as early as 2013 and interviewed numerous company officials, outside counsel and regulators, reviewed reports and concluded that the firm was “satisfied that the appropriate members of management were fully informed with respect to such conduct.”

“KPMG did not publicly report the widespread fraud, despite now acknowledging that its auditors were aware of it prior to the 2016 settlement,” the senators wrote. “Do PCAOB rules or guidance indicate whether auditors have a responsibility to publicly report or otherwise act on their knowledge of illegal or inappropriate activity by their clients?”

A PCAOB spokesman said the board looks forward to reviewing and responding to the letter. A KPMG spokesman said the firm takes seriously its role as independent auditor and is confident its audits were planned and performed in accordance with professional standards. “Beyond that, our response letter stands on its own, and we have nothing further to add,” the firm said.