PCAOB Sanctions Former KPMG Vice Chair of Audit for Failure Reasonably to Supervise, Imposing Largest Individual Penalty Ever in a Settled Proceeding
First Time This Type of Disciplinary Action Has Been Taken by the PCAOB
The Public Company Accounting Oversight Board (PCAOB) today announced that it has sanctioned Scott Marcello, CPA, KPMG LLP’s former Vice Chair of Audit, fining him $100,000 and censuring him for supervisory failures in connection with KPMG’s receipt and use of confidential PCAOB inspection information. This is the largest money penalty ever imposed on an individual in a settled case.
The PCAOB’s order found that Marcello failed reasonably to supervise KPMG personnel who engaged in a scheme to illegally obtain and use confidential PCAOB information in an attempt to improve KPMG’s PCAOB inspection results. This matter is the first in which the PCAOB has imposed sanctions for a failure reasonably to supervise. Section 105(c)(6) of the Sarbanes-Oxley Act authorizes the PCAOB to impose sanctions for a failure reasonably to supervise an associated person who has violated the Board’s professional standards, the Board’s rules, or certain laws.
“This ‘first of its kind’ disciplinary action demonstrates that the PCAOB is committed to sanctioning top-level personnel at the largest firms when they fail to take sufficient supervisory steps aimed at preventing violations by their subordinates,” said PCAOB Chair Erica Y. Williams. “Following the Department of Justice’s and the Securities and Exchange Commission’s actions against the perpetrators of the scheme, the Board believes it is important to hold Mr. Marcello accountable as their supervisor for contributing to a culture that led to this serious misconduct.”
The Board found that, among other supervisory failures, Mr. Marcello failed to take appropriate action when he was informed by a subordinate, in early 2016, that personnel under his supervision had obtained highly confidential PCAOB information, which Marcello understood had come from within the PCAOB. Marcello did not admit to or deny the findings in the order.
“Knowing that his subordinates may have been involved in unethical or illegal behavior, Mr. Marcello failed to take steps required of someone in his position,” said Patrick Bryan, Director of the PCAOB’s Division of Enforcement and Investigations. “This action sends a strong message that firm leadership must take their supervisory responsibilities seriously.”
PCAOB enforcement staff members Michael Plotnick and William Ryan conducted the investigation. The PCAOB thanks the U.S. Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission for their assistance in this matter.
The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website.
Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.
About the PCAOB
The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws.
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