Test cheating at KPMG strikes at heart of its culture: CEO

KPMG has been fined, two partners forced out and staff docked pay or disciplined after widespread cheating on internal training tests.

KPMG Australia launched an investigation into cheating on internal tests after a whistleblower complaint. Picture: Getty Images

Two KPMG Australia partners have been forced out of the firm, 16 partners have lost remuneration and the firm has copped a $615,000 fine from regulators over widespread cheating among staff, including auditors, on internal tests.

About 12 per cent of the staff, or 1131 people, across the Australian business have been disciplined after a 15-month investigation into improper answer-sharing on online multiple-choice tests between 2016 and 2020.

The investigation was sparked by a whistleblower complaint in February last year and KPMG self-reported the issue to regulators, including ASIC.

The disciplinary action has ranged from verbal cautions to written warnings, with 46 people, including 16 partners, losing “tens of thousands of dollars” in pay.

The US Public Company Accounting Oversight Board (PCAOB) posted a settlement deed with KPMG online on Wednesday, revealing that the “improper answer-sharing” covered tests beyond the original complaint, which related to professional independence training, to tests on auditing and accounting.

It said the misconduct “occurred at all levels” and was widespread within the audit practice with at least 277 auditors involved.

KPMG’s CEO Andrew Yates said that once the investigation revealed breaches over audit testing, the firm had put all audit partners, directors, senior managers and mangers through two years’ worth of audit testing.

He said he was “incredibly disappointed” with the revelations.

“This reflects poorly on the firm and we have taken it very seriously and from the word go have tried to remediate,” Mr Yates said.

All staff had been retested on independence training, which is administered online and tests knowledge of the technical rules in different legislature that underpin internal policies about independence, such as shareholdings and client conflicts.

Mr Yates said two partners had left the firm at the end of an investigation that included the way people conducted themselves throughout the investigation process.

“It was a holistic response to the initial behaviour and the broader conduct through what was a very comprehensive investigation process,” he said.

He said he was not concerned about his staff’s general attitude to cheating: “We have fantastic people and I don’t think it’s generational, it impacted all generations in the firm. I think our people have great integrity and great intent but … this is an example of making a mistake and we have tried to be honest and remediate it.”

“I’m disappointed because the conduct reflects on all of us,” says KPMG CEO Andrew Yates. Picture: John Feder

KPMG had just completed a review of culture and was now able to start looking at the root cause of the problem.

In a statement, KPMG said it had also implemented additional education programs focused on the importance of training, issued clearer and more prominent warnings about training and testing-related misconduct, and introduced enhanced monitoring to identify possible future misconduct. The firm had also released internal integrity training which highlighted, amongst other things, that sharing answers in relation to testing was not acceptable.

Mr Yates said: “While we moved quickly to get on the front foot with our response to this matter almost 18 months ago, it is important today to come full circle and be transparent and reinforce to our partners and people that this behaviour is totally unacceptable. It represented not only a breach of our code of conduct, but clearly does not align with our values.

“I’m disappointed because the conduct reflects on all of us. Everyone at our firm is now absolutely clear that there are non-negotiable expectations of behaviour aligned with our values. Our partners and people understand that unethical behaviour has no place in the values-based culture at KPMG.

“The behaviour struck at the heart of our culture and that’s why it was crucial we acted quickly and decisively.”