KPMG Gets Probation in Orange County Bankruptcy

Accounting firm KPMG was put on probation for a year for alleged gross negligence and unprofessional conduct that contributed to Orange County’s 1994 bankruptcy filing.

The Board of Accountancy on Thursday placed the international firm on probation and ordered it to pay $1.8 million in fines and costs.

KPMG’s lead audit partner, Margaret Jean McBride, cut corners and ignored warning signs as then-County Treasurer Robert L. Citron filed false accounts and faked interest earnings, the ruling said.

McBride, who still heads KPMG’s government audit section in Costa Mesa, received three years’ probation and 100 hours of community service.

Two auditors each got two years of probation.

Orange County’s investment pool collapsed in December 1994, resulting in a loss of $1.7 billion and the nation’s largest municipal bankruptcy filing. Citron was forced to resign after revealing the losses.

KPMG plans to appeal the decision.

The probation terms require KPMG’s government auditing section to undergo investigation, and staffers must take classes, said Greg Newington, the board’s enforcement chief.