- The Securities and Exchange Commission (SEC) suspended two former KPMG auditors for improper professional conduct during an audit of the College of New Rochelle, a non-profit school in New York that closed its doors in 2019.
- "Auditors of municipal issuers are key gatekeepers in upholding the reliability and integrity of financial information provided to investors in municipal bonds," Matthew Jacques, chief accountant of the SEC's enforcement division, said. "It is critical that they exercise professional care and skepticism."
- The former partner, Christopher Stanley, and former senior manager, Jennifer Stewart, permitted the college to issue an unmodified audit opinion on the college's fiscal year 2015 financial statements despite failing to complete critical audit steps, the SEC said in separate orders against Stanley and Stewart.
KPMG's work on the audit had stalled because the college's former controller had provided the audit team with inaccurate, incomplete and contradictory information, the orders said.
The former controller and the college's president informed Stanley and Stewart the college needed KPMG to issue the audit report before the end of the day. That afternoon, despite the existence of outstanding open items and unanswered questions, the auditors issued the audit report, a violation of generally accepted auditing standards (GAAS).
Among other things, the auditors failed to obtain sufficient audit evidence, properly prepare documentation or examine journal entries or adequately assess audit risk.
They also failed to exercise due professional care and professional skepticism, the SEC said.
The college's fiscal year 2015 audited financial statements, which were submitted to the Municipal Securities Rulemaking Board, overstated the college's net assets by $33.8 million.
In their settlement with the SEC, Stanley and Stewart agreed to be suspended from appearing or practicing before the SEC as an accountant. Stanley can apply for reinstatement after three years and Stewart, the senior manager at the time, after one year.
They also can't serve as an engagement manager, engagement partner, or engagement quality control reviewer in connection with any audit expected to be filed with the Municipal Securities Rulemaking Board.
“We are committed to executing quality audits, while continuing to foster a culture of integrity," KPMG said in a statement. "The actions as described in the SEC orders do not live up to KPMG standards.”
Separately, the college's former controller has been charged with fraud in connection with the college's fiscal year 2015 financial statements.