WASHINGTON — Sens. Elizabeth Warren and Ed Markey are seeking information about KPMG to determine if it lived up to its professional obligations when it decided not to disclose fake accounts that Wells Fargo’s employees were creating for customers.
The Massachusetts Democrats, along with Sens. Bernie Sanders I-Vt., and Mazie Hirono, D-Hawaii, sent a letter to KPMG in October of last year asking about its role in auditing Wells Fargo between 2011 and 2015 and whether there were Sarbanes-Oxley Act violations when the phony accounts, which eventually led to $190 million in fines and restitution, were not disclosed in financial statements.
KPMG responded in November, saying that it had discovered the fake accounts, but said they were immaterial to the larger picture.
“From a financial reporting perspective, the improper sales practices did not involve key controls over financial reporting,” said Lynne M. Doughtie, chairman and chief executive officer of KPMG. “From the financial statement perspective, its effects were not financially significant.”
Doughtie said that an outside consultant supported KPMG's conclusion that the fees associated with the bogus accounts were insignificant because they totaled just $5 million during the five years in question, while Wells Fargo made more than $20 billion in 2015 alone.
But Warren and Markey sent a letter Tuesday disputing that claim, asking the Public Company Accounting Oversight Board, which sets professional accounting standards, whether it had reviewed KPMG’s audit of Wells Fargo.
“KPMG's failure to publicly identify the Wells Fargo scandal or its risk to investors raise significant questions about the conduct of both Wells Fargo and KPMG, and the PCAOB's role as overseer of public company auditors,” the senators wrote to James Doty, chairman of the oversight board, while pointing to the public relations hit and the massive amount of money that investors lost as Wells Fargo’s stock sunk more than 10% following the settlement.
“This response from KPMG raises numerous questions. Principally, it is difficult to comprehend the KPMG conclusion that the scandal ‘did not involve key controls over financial reporting,' ” the lawmakers' letter said.
“KPMG, in its role as Wells Fargo's independent auditor, failed to prevent or even publicly disclose the fraud that affected hundreds of thousands of customers, and cost the company CEO his job," the letter said. "In response to questions about this failure, KPMG denied any wrongdoing, standing by their conclusion that Wells Fargo — during the entire time the scandal was ongoing — ‘maintained ... effective internal control over financial reporting.'"
A spokesperson for the Public Company Accounting Oversight Board said "we appreciate the senators’ continued interest in the important investor protection mission of the PCAOB’s oversight of auditors of public companies. We look forward to reviewing and responding to their letter.”
A KPMG spokesperson said that the firm “takes very seriously its role as independent auditor, and we are confident that our audits and reviews were appropriately planned and performed in accordance with applicable professional standards."