The Securities and Exchange Commission suspended two former KPMG auditors accused of improper professional conduct during an audit of the now-defunct College of New Rochelle.
The SEC already charged the New York college’s former controller, Keith Borge, in 2019 with fraud in connection with the college’s fiscal year 2015 financial statements. The SEC said former KPMG partner Christopher Stanley approved — and former KPMG senior manager Jennifer Stewart authorized — an unmodified audit opinion on the school’s fiscal year 2015 financial statements, even though they hadn’t finished doing some important audit steps. KPMG’s work on the audit had stalled because the school’s former controller “had given the audit team inaccurate, incomplete, and contradictory information,” according to the SEC.
On Nov. 30, 2015, the former controller and the college’s president told Stanley and Stewart the college needed KPMG to issue the audit report before the end of the day. “That afternoon, despite the existence of numerous outstanding open items and unanswered questions, Stanley and Stewart decided to issue the audit report,” said the SEC.
The settlement with the former auditors comes only a few months after the
“Auditors of municipal issuers are key gatekeepers in upholding the reliability and integrity of financial information provided to investors in municipal bonds,” said Matthew Jacques, chief accountant of the SEC Enforcement Division, in a statement Tuesday. “It is critical that they exercise professional care and skepticism.”
The SEC found that Stanley and Stewart violated Generally Accepted Auditing Standards by failing to obtain sufficient appropriate audit evidence, properly prepare audit documentation, properly examine journal entries, adequately assess audit risk, and exercise due professional care and professional skepticism, among other things. The college’s fiscal 2015 audited financial statements, which were submitted to the Municipal Securities Rulemaking Board in accordance with its obligation to provide continuing disclosure to investors, fraudulently overstated the college’s net assets by $33.8 million.
Stanley did not immediately respond to a request for comment, and Stewart could not be reached for comment. KPMG was not charged by the SEC but admitted the former auditors’ alleged actions didn’t live up to its standards. “We are committed to executing quality audits, while continuing to foster a culture of integrity,” the firm said in a statement emailed to Accounting Today. “The actions as described in the SEC orders do not live up to KPMG standards.”
Without admitting or denying the findings, Stanley and Stewart agreed to be suspended from appearing or practicing before the SEC as accountants. They have the right to apply for reinstatement after three years and one year, respectively. Each of them also agreed to not serve as the engagement manager, engagement partner or engagement quality control reviewer in connection with any audit expected to be posted in the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system until they’re reinstated by the SEC.
In 2019, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against the former controller, Borge, and he pleaded guilty to those charges. He was eventually sentenced to three years in prison.
Auditors can face consequences from the SEC. “Audited financial statements for municipal issuers are submitted to the MSRB pursuant to the continuing disclosure undertakings required by the Exchange Act,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Public Finance Abuse Unit, in a statement. “We will investigate auditors’ conduct in municipal audits and, where appropriate, hold them accountable when they act improperly.”
