Keeping the Trust in Trusted Advisor
I was visiting a client earlier this week, who brought up the current scandal involving KPMG. One of the senior partners in their LA office had just been arrested on charges of alleged insider trading. My client commented on how this could be a good “opportunity” for Marcum.
This unfortunate event is not good for anyone. Not the accounting profession, not KPMG, not firms like ours that compete with KPMG on a daily basis, and certainly not for Herbalife or Skechers, the two clients involved. There are no winners here.
Let’s look at KPMG first. What has happened is reminiscent of what happened to Arthur Andersen (remember them?) in 2002. KPMG is an excellent firm, with good, smart people working for them. It would be unfair to taint or punish the firm or its people for the individual acts of one rogue partner. The accounting profession and the business community certainly cannot afford the unwarranted demise of another major international accounting firm due to the acts of a lone individual. Back in 2002, Arthur Andersen was convicted of obstruction of justice in the Enron scandal and within a matter of months was out of business. Years later, the felony conviction was overturned, but there was no reviving Andersen from the dead. The damage was permanently fatal.
Since discovering the transgression, the leadership of KPMG has done exactly what was needed and required. It fired the partner who was implicated; it resigned from its role as auditor of the two clients involved, since that partner’s alleged illegal acts impair their independence; and they’re cooperating fully in an ongoing investigation as to what actually happened. All of this will no doubt result in the loss of several millions of dollars in revenue from the loss of the two clients, untold costs in cooperating with multiple regulatory investigations, the possibility of refunding millions of dollars to the two clients involved so they can engage another firm(s) to re-audit KPMG’s prior work, and an incalculable amount in reputational damage, all because of one person.
This is certainly not good for the accounting profession. Our profession has always been regarded as a “trusted advisor.” Most of us take great pride in the fact that our clients put us at the top of the food chain when it comes to ranking their outside professionals and consultants. And those of us who manage firms make it a top priority and spend a great deal of time and money to ensure that our policies, procedures, culture and values accept nothing less than complete honesty and integrity.
Unfortunately, no firm can control the individual acts of each and every employee. When something like this happens, all we can do is take immediate remedial action to reinforce that unethical or illegal behavior is absolutely unacceptable, will not be tolerated and that the firm and its clients are more important than any one individual, no matter how senior that person may be.
We at Marcum take strong measures to ensure that we have the right people on our team. We have policies and procedures in place to police our engagements and verify our independence from our clients, so that we can maintain the necessary objectivity. We take regulation seriously, and as a matter of fact, we embrace it, whether self-imposed, industry-directed or government-mandated. And we set a tone, from the top down, that transgressions such as the situation KPMG is facing now will absolutely not be tolerated.
I go to bed every night as I imagine most managing partners do – hoping that all the precautions and all the reinforcement works. There, but for the integrity of each individual on the team, go we.
