KPMG will no longer loan tax professionals to GE during busy season, according to a source close to the situation. KPMG was billing an extra $8-10 million, over and above the audit each year, for the service.
Loaning, assigning, or “seconding” tax or any “bookkeeping” staff to an audit client is prohibited by the Sarbanes-Oxley Act of 2002 and by regulations that precede Sarbanes-Oxley. It looks like a regulator got to both KPMG and GE, but quietly. I doubt we’ll ever see a public sanction or fine from the PCAOB or the SEC for KPMG.
My story exposing this prohibited activity by an auditor for an audit client was published in Forbes last March.
KPMG has been GE’s auditor for more than 100 years. Former SEC Chief Accountant Lynn Turner was surprised and quite angered at my revelation. In addition, Turner commented in his newsletter on an email I received from the Carpenters Pension Fund after my column appeared at Forbes.com. The pension fund sought to hold GE and KPMG accountable for auditor independence and have a discussion at the annual meeting about auditor rotation. They were blocked by GE and the SEC:
KPMG has been the auditor of GE for over 100 years. In light of that, I understand the Carpenters Pension Fund submitted a auditor rotation shareholder proposal for shareholder consideration to GE and about 45 other large cap companies with audit firm relationships that exceeded 10 years. GE and numerous other companies requested that the SEC issue a no-action letter that would allow them to omit the proposal from their 2012 proxy statement.
Despite the fact that GE had not changed auditors for over 100 years, and auditor rotation had not been “normal business” for GE, and despite the fact that according to reports KPMG was not independent of GE due to non compliance with the SEC’s own independence rules as a result of loaning staff to GE, similar to acts in Australia where the SEC sanctioned KPMG with an enforcement action, the SEC staff obliged, agreeing with the companies’ argument that the issue was “ordinary business.” I understand the Carpenters Pension Fund requested that the SEC staff take the no-action issue to the full Commission for a decision, but that the staff rejected that request. As a result, the SEC staff denied shareholders – the owners of GE – the opportunity to vote on a non binding shareholder proposal raising the issues of auditor independence and firm rotation.
Rather the SEC staff have apparently chosen to allow a non independent KPMG to remain as the auditor, according to reports.
My story at Forbes, with all the details is here.