Ethics Newsline®

WASHINGTON
Accounting firm KPMG last week agreed to pay $22.5 million, including the return of four years’ worth of fees, to settle allegations that the company helped Xerox Corp. hide bookkeeping fraud.

KPMG will pay a $10 million civil penalty, $2.7 million in interest, and $9.8 million in disgorged revenues for its auditing work for Xerox from 1997 through 2000, reported the New York Times.

The U.S. Securities and Exchange Commission (SEC) accused KPMG of rubber-stamping false financial statements that overstated Xerox’s financial results by $1.5 billion over the span of four years.

The SEC rebuked KPMG for getting too cozy with Xerox, saying the firms’ 40-year relationship had compromised the auditor’s willingness to flag bad bookkeeping practices.

KPMG went so far as to remove a senior employee from the account at Xerox’s request after the partner raised questions and complained to KPMG’s chairman about Xerox’s accounting practices, noted USA Today.

“This is a fairly egregious fraud on the part of Xerox, and KPMG didn’t live up to its role as gatekeeper,” said Paul Berger, associate director of enforcement at the SEC.

Last week’s settlement will be set aside for restitution for investors who lost money after the fraud was revealed in 2000. Six former Xerox executives already paid $22 million into the fund when settling related charges in 2003.

The SEC still is pursuing charges against five KPMG partners involved in the audits, according to the Times.