Regulators Censure KPMG for Fund Audit
KPMG, the third-largest U.S. accounting firm, was censured by the Securities and Exchange Commission on Monday for auditing a money-market fund at the same time that it was investing in the fund.
New York-based KPMG audited the financial statements of the Short-Term Investments Trust, a government money market fund in AIM Management Group Inc.’s family of funds, even though it had deposited more than $25 million in the trust, the SEC said.
The case comes as SEC Chairman Harvey Pitt is under pressure to toughen his approach to the accounting industry after the collapse of Enron Corp. The SEC is investigating Enron and its auditor, Andersen, whose independence as an auditor was questioned because it also worked as a consultant to Enron.
“Ours was an inadvertent investment made only because we invested in what we thought was a mutual fund sponsored by someone who wasn’t a client,” KPMG spokesman George Ledwith said. “We’re confident all our audit work performed for AIM was appropriate and conducted in accordance with professional standards.”
KPMG, which didn’t have to pay a financial penalty, consented to the SEC’s order while neither admitting nor denying wrongdoing. The SEC said no investors were harmed by KPMG’s audit independence failure.
The SEC case is the second brought against KPMG for audit-independence violations in recent years. A year ago, the SEC held that KPMG failed to maintain its independence in a 1995 audit of Porta Systems Corp., a telecommunications equipment company. KPMG is appealing the decision to a federal court.
KPMG initially deposited $25 million in Short-Term Investments Trust in May 2000 and made 11 additional investments in the next two months. Neither the SEC nor KPMG would disclose the highest amount that the accounting firm invested in the fund.
KPMG, which invested in the fund until December 2000, mistakenly told AIM that it had no investment in AIM funds during the period, the SEC said. After learning of its conflict of interest, the accounting firm withdrew its money and paid another auditor to review the fund’s finances, the order said.
The SEC said KPMG’s independence violations “occurred primarily because the firm lacked adequate policies or procedures to prevent or detect such violations.” KPMG officials failed to check whether the accounting firm was Short-Term Investments Trust’s auditor before making an investment. KPMG has agreed to improve its audit independence monitoring, the SEC said.
