As part of the Big Four accounting firms, KPMG holds a high standard when it comes to their auditing. They are expected to provide exceptional work to all clients across the global. So how did they miss the impending collapse of the Espirito Santo Financial Group?
According to a Wall Street Journal article entitled KPMG Faces Criticism for Espirito Santo Audit Work, KPMG was also the auditor for three offshore investment vehicles that illegally traded Espirito Santo debt from Banco Espirito Santo. These offshore companies were registered in the tax haven of Jersey and were all audited by Andrew Quinn, an executive director in the KPMG Jersey offices.
Some may say that because KPMG is such a large company there may have just been a lack of communication between the Jersey office and the Lisbon, Portugal office. However, if you had discovered fraud that would make a huge impact, such as dissolving a company, wouldn't you make sure it was communicated? Also, Espirito Santo Financial Group provides a huge clientele for KPMG (over 400 clients ranging over 60 different entities) why wouldn't KPMG want the company to survive?
I believe it is the Jersey office that should be held accountable. The Jersey office directly audits the three offshore vehicles that were conducting a fraudulent scheme. Any executive director would catch the name of such a large client and see a red flag.
So I suppose the big question here is why? Why not report the fraud going on right under your nose? Why not prevent the collapse of a major Portuguese financial group and bank? The only real answer is that getting paid and maintaining clients sometimes gets in the way of doing the right thing. That is the ever present problem with auditing. People don't do what is ethically correct enough in this field.
