Netherlands arm of KPMG fined $25M for cheating in exams

Staff followed US lead and shared answers after move to online testing

KPMG Accountants NV, the Netherlands-based arm of the global professional services firm, has been fined $25 million (€23 million, £20 million) by America's Public Company Accounting Oversight Board (PCAOB) for failing to prevent its financial auditors from cheating on exams.

That's half what the firm's US subsidiary agreed to pay in 2019 to settle similar cheating charges brought by the US Securities and Exchange Commission (SEC). Given KPMG brought in $36 billion in revenues worldwide last year, the fine levied in the Netherlands represents about seven hours of annual takings.

Though KPMG insists that "integrity" is one of its five core values, on Wednesday the PCAOB, overseen by the SEC, censured [PDF] the firm's Dutch subsidiary, imposed a $25 million penalty, and demanded remedial action to protect the public interest and investors.

According to the PCAOB, from around October 2017 through December 2022, KPMG Netherlands allowed personnel to take internal training tests – required to maintain professional accounting certification – without adequate oversight or controls, in violation of the Board's rules.

"Those quality control failures prevented [KPMG NV] from identifying that hundreds of [company] professionals were involved in improper answer sharing – either by providing access to test questions or answers, or by receiving such access without reporting it – in connection with tests for mandatory internal training courses," the PCAOB explained in its disciplinary order.

KPMG Netherlands employees, the accounting watchdog noted, used various means to share test answers and took tests together. "The vast majority of the professionals who engaged in improper answer sharing performed work for the [KPMG NV]'s Assurance practice."

The mandatory tests and training for staff have been conducted through online platforms since 2017 in the Netherlands. According to the PCAOB, most of the misconduct happened through email messages containing test contents or answers. And this behavior occurred despite awareness of the KPMG's $50 million settlement in the US.

"Of the hundreds of [KPMG NV] personnel who engaged in improper answer sharing during this period, the overwhelming majority did so at least once after the June 2019 publication of the KPMG US settlement," the oversight board noted.

The country's own oversight watchdog, the Dutch Authority for the Financial Markets (AFM), conducted a parallel investigation and placed KPMG Netherlands under "enhanced supervision" – a program that includes remediation, analysis, and procedural changes to prevent further ethical lapses.

This went right to the top

As both the AFM and PCAOB noted, the unethical conduct extended to top managers.

"The improper answer sharing included a number of [KPMG NV] partners and some of its most senior leaders, including Marc Hogeboom, who served as the firm's head of assurance and on the firm's Management Board, and another individual who served as the chairman of the firm's Supervisory Board," the PCAOB asserted.

The US watchdog issued a separate order [PDF] censuring Hogeboom, fining him $150,000, and barring him from associating with a registered public accounting firm. Hogeboom is no longer with KPMG.

In a statement, Stephanie Hottenhuis, CEO of KPMG in The Netherlands, acknowledged just how badly the firm had failed.

"The conclusions are damning, and the penalty is a reflection of that. I deeply regret that this misconduct happened in our firm. Our clients and stakeholders deserve our apology," she declared.

"Following the investigation, people at all levels of seniority who participated in answer sharing have been sanctioned. Some of them have left the firm. It is a hard lesson, but we are determined to learn from this." ®

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