I’ve not seen much news lately on the alleged insider trading by former KPMG partner Scott London. Two articles of interest.
These two articles have different perspectives on how much responsiblity belongs to the firm. We need a long wrestle match with that question.
Writing at Pacific Coast Business Times, Professor Steven Mintz says in an Op/ed: KPMG scandal damages reputation of the accounting profession.
On one hand, Prof. Mintz is scratching his head like the rest of us who are trying to sort out the motivation. Only thing he can bring to bear is a quote from the movie Forest Gump:
“stupid is as stupid does”
Whether that is the case or not, Prof. Mintz sees a troubling pattern. One incident is difficult enough to process, three dots that seem to be connected are more troublesome.
He sees a possible pattern emerging when he considers this set of allegations, Deloitte and Touche vice chairman Thomas Flanagan sitting in jail for 21 months because of insider trading, and KPMG paying a $456M penalty & seeing three staffers in jail with sentences ranging for 6.5 to 10 years for a tax shelter scandal.
If I’m getting his point, it seems like one partner (Mr. London) with a massive ethical failure is an oddity, but three massive ethical failures (2 at KPMG, 1 at D&T) can’t be dismissed so easily.
He closes his op-ed with a discussion that ethical behavior is still the responsibility of the firm.
Good read. Check it out.
Lessons learned for the rest of us
Three litigators from the legal firm of Fried Frank have a column at Mondaq discussing some lessons learned: Implications of the London/Shaw Insider Trading Case For Public Companies And External Auditors.
The first point is the situation doesn’t call into question the policies and procedures that KPMG put into place. I’ll take the liberty to quote one sentence of the free article:
No system of quality controls, however robust, can prevent a “rogue” partner or employee from surreptitiously tipping a third-party who is not subject to the firm’s supervision or control.
Let me rephrase: What system could prevent or detect a partner who gives a verbal tip to someone outside the firm? Our society would not tolerate the steps necessary to find out what Mr. London is alleged to have done.
Another point from the article is this fiasco should prompt all CPA firms to revisit their independence policies and training. That’s a great idea.
If you are wise, you will think about the disasters in your industry and ponder, at least for a moment, “how are we doing on that issue?” I do that all the time when I read about litigation against accountants or see a list of common audit deficiencies.
That fiasco you read about might take only a moment to consider, might take a short conversation, or might prompt a full review. Keep your eyes and ears open for opportunities to improve your firm.
Final implication in the article is labelling as a non sequitur the idea that the alleged behavior of Mr. London means the names of audit partners should be identified. The two issues have nothing to do with each other.
That would be like saying his alleged ethical failure means we should have full adoption of IFRS in the U.S.
Oh, wait. Maybe that non sequitur would improve the arguments in favor of IFRS.
Check out the full article from Fried Frank
Read both articles and ponder how much responsibility a firm has for the ethical behavior of its staff.