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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Original Mad Dog who wrote (6)	1/14/2002 6:14:32 PM
From: Labrador	Respond to of 3602

SEC Censures KPMG for Violating Agency's Auditor-Independence Rules By JUDITH BURNS Dow Jones Newswires WASHINGTON -- Securities regulators censured KPMG LLP, a Big Five accounting firm, for making a hefty investment in a mutual fund whose books the company audited. KPMG invested $25 million in AIM Management Group Inc.'s short-term investment trust, a money-market mutual fund, in May 2000 and kept the account open until the end of that year, the Securities and Exchange Commission said Monday. The investment violated rules requiring auditors to be independent of the firms that they audit. The SEC found that KPMG didn't have policies or procedures in place to prevent or detect independence violations. "The SEC's decision to censure KPMG reflects the seriousness with which the SEC treats violations of the auditor-independence rule, even in the absence of demonstrated investor harm or deliberate misconduct," SEC Enforcement Division Director Stephen Cutler said in a written statement. KPMG agreed to the SEC censure without admitting or denying the agency's findings, and the firm agreed to take measures to prevent such violations in the future. No fines were imposed against KPMG, despite what the SEC termed "an extreme departure from the standards of ordinary care" to ensure independence. "While this conduct was very serious, we thought the appropriate penalty was a censure," said Paul Berger, an associate director for enforcement in the SEC's Washington office. Mr. Berger said KPMG has 90 days to tighten policies and procedures and name at least one partner to oversee compliance with auditor-independence rules. KPMG spokesman George Ledwith said that the firm has made the changes sought by the SEC and that it has taken additional steps, such as naming a new team to track investments and prevent independence violations. "We're confident that our independence procedures and culture are now among the best in the industry," Mr. Ledwith said. In censuring KPMG, the SEC faulted it for not having procedures that would have required employees to check whether AIM was on a "restricted list" of audit clients, making it off-limits as an investment choice. KPMG didn't require its partners to investigate or select money-market investments, missing another chance to detect problems, the SEC added. A special check under the SEC's "look-back" program to detect independence violations didn't flag the investment, either. Although KPMG drew up a list of investments, including the AIM fund, the SEC said "no one at KPMG noticed" that it was an audit client. AIM Management Group Inc. manages about $141 billion of assets in more than 50 funds. KPMG began auditing the Houston-based fund firm in 1976 and repeatedly confirmed its independence from it in 2000, even though at one time its investment in the AIM money fund amounted to roughly 15% of the fund's net assets, the SEC said. KPMG said the investment was made inadvertently through the brokerage subsidiary of SunTrust Banks Inc., which wasn't an audit client, without realizing that it was acting as an intermediary for AIM. Opening the account required KPMG officials to sign an application that clearly included AIM's name alongside the SunTrust logo, however, the SEC said. After the initial investment, KPMG made eleven more deposits, putting about one-third of its surplus cash in a fund it audited. "The audit team had no knowledge of the investment," Mr. Ledwith stressed. After an AIM employee discovered KPMG's investment in the course of a routine year-end review, KPMG closed the account, resigned as AIM's auditor and paid to have AIM's books reaudited. "We're confident that all of our audit work performed for AIM funds was appropriate," and no one has questioned the quality of the audit reports or the professional objectivity of the audit team, Mr. Ledwith added. Write to Judith Burns at judith.burns@dowjones.com