KPMG is laying people off in Canada.

Check out our COVID 19 Big 4 Tracker where we are tracking the latest layoffs and pay cuts.

KPMG US Layoffs

Update as of October 8, 2020 – It has been announced that there was an additional 200 employees laid off from KPMG. This time it is only executive assistants.

KPMG has reportedly laid off 1,400 people in the United States. 779 were laid off in tax, advisory and audit. The remaining employees appear to be laid off from back office roles.

The cuts came from the following departments.

• 194 tax employees
• 396 advisory employees
• 189 audit employees

If that wasn’t enough, KPMG also cut the pay of 125 tax employees.

This is about 4% of the US workforce. Previously Deloitte cut 5% of their workforce.

Below is what the firm’s position was in Early 2020:

Lynne Doughtie has announced that they do not plan to lay anyone off in the US yet but that has potential to change. KPMG recently won stimulus work in the United States so that might help the KPMG US firm from having to lay people off.

It looks like this might change after the KPMG UK Layoffs.

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KPMG Canada Layoffs

They are said to be laying people off in Vancouver, Calgary and Toronto. Lay-offs are hitting poor performers first and also lower staff levels. There is a feed on reddit where people are commenting on who got laid off. Some people even said that managers were being laid off. The layoffs seem to be in the hundreds range which doesn’t seem that much, but I don’t think KPMG Canada has that many employees.

KPMG toronto was said to have laid off about 40 employees.

There are terrible stories of people only having a skype call with their partners and then being locked out of their email.

A thing to keep in mind here is that these are still member firms of a larger firm. They can make decisions before firmwide emails go out if they get nervous which seems like partners here did. They are worried about cash flow and their paychecks. People live a certain lifestyle and if that is threatened that won’t wait long to give you the old ax.

KPMG UK Layoffs

Updated July 27, 2020

KPMG is reported to be laying off 200 people in the United Kingdom according to bloomberg and sky news.

They are going to be cutting 100 people from their consulting practice. Their consulting practice is said to have about 3,000 employees. That comes to about 3% of their consulting workforce.

The rest of the layoffs will hit internal firm service departments like HR and marketing.

Accenture already cut 8% of their workforce in the UK early this month. For those of you that don’t know accenture is an extremely large consulting firm. They grew to be larger than the big 4 accounting firms. Consulting is a great business to be in until a downturn in the economy when businesses spend less on services they don’t need. Consulting services are luxuries that most businesses don’t need right now.

KPMG is also said to be considering cuts to their pension plan. KPMG currently contributes to employee pension plans. They contribute up to 4.5% of a person’s salary. This obviously benefits older employees the most. I doubt they would get rid of this for younger employees, but they probably will for employees over a certain salary.

There are some firms in the United States that contribute up to 6% of your salary into a retirement plan. I’m sure that the big 4 accounting firm in the United States are considering a similar plan to what KPMG UK is doing.

This also tells us that KPMG is going to likely lay people off in the United States.

Deloitte will shut down in Australia

Deloitte Australia is going to be shutting down for a week in April. They are doing this to avoid cutting jobs. This makes sense since you won’t have to pay for the costs of running such a large business. Additionally, you won’t have to have people run in a circle and worry about their jobs. Deloitte has told employees that they need to be productive while working from home in order to keep their jobs.

Ernst and Young has cut the amount of money that partners can draw from the company.

Other Big 4 Pay Cuts

Grant thornton said that partners will take pay cuts of between 20 percent and 50 percent.

Check out our COVID 19 Big 4 Tracker where we are tracking the latest layoffs and pay cuts.

Big 4 in India have said that they are delaying the yearly appraisal cycle. They will put off promotions, raises and bonuses until further notice. Partners India are also being told to limit their partner draws.

Additionally there is news that the big 4 are still honoring their new employee offers in the U.S., but I’m not sure how long that can last to be honest.

In the UK Grant Thornton has asked their staff to take sabbaticals or huge pay cut. They have been asked to take 40% pay cuts if they do not accept the sabbatical. The pay in grant thornton is not as high as the big 4 firms. For example, in the uk, big 4 partners typically make about 500,000 pounds. While grant thornton partners in the UK only make about 373,000.

In the UK, the big four firms are also withholding profit payments to partners. Deloitte is also said to be offering their employees unpaid sabbaticals in the UK.

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The big 4 accounting firms have to deal with large accounting scandals every year. It’s hard to keep track of all the accounting scandals, but that’s what the purpose of this page is.

We’ve tracked the largest accounting scandals of 2018 below.

There are different categories of scandals involving the big 4. Some of the general categories are below.

Accounting/Auditing Scandals – Accounting or auditing scandals typically involve a big 4 client that is having financial difficulties or accounting errors. These typically involve in investors suing the big 4 accounting firms. The investors typically allege that they relied on the financial statements of the big 4 client that the big 4 said were good.

Independence scandals – These type of scandals involve situations where big 4 professionals aren’t independent from their clients.

Ethical scandals – this involves big 4 professionals doing unethical things in the workplace including terrible things like sexual harassment. Other things that fall into this category are things like paying women and diverse people less.

KPMG Accounting Scandals 2018

Carillion audit

The Carillion scandal for KPMG was one of the largest scandals of 2018 if not the biggest audit scandal.

Carillion was one of the largest construction companies in the UK before they went under. They experienced financial issues in 2017 and went into bankruptcy in early 2018.

kpmg signed off on financial in march of 2016, so how could the firm have gone of the rails by 2017. Work found to be unacceptable according to UK watchdog in June 2018 as a result of their Carillion Audit.

KPMG PCAOB Leak Scandal

Type of scandal – ethical scandal

The PCAOB is the regulator of the big 4 accounting firms in the United States. It is important that the PCAOB selection process is random so that the big 4 can’t try to change workpapers ahead of the PCAOB audits. In this case, KPMG was given a heads up as to what audits were going to be selected by the PCAOB.

Former kpmg accountants were charged by the sec in January of 2018 for their role in leaking information to fellow KPMGers after leaving the PCAOB.

Gupta scandal

Type of scandal – ethical scandal

the gupta scandal involved government corruption. The gupta family was a family involved in political corruption in south Africa. KPMG was their auditors and was obviously conflicted because the partners on the account were very closely tied with the gupta family. KPMG faced many negative side effects as a result of their association with the scandal. They were investigated by the south African charted accountant organization.

South Africa chartered accountants probe. Kpmg set to audit own staff in april of 2018.

As a result of the Gupta scandal, KPMG lost a lot of clients in South Africa. Barclays Africa was one of these clients. They dropped KPMG as their auditor in May 2018.

Big 4 Foreign Affiliate scandal

Type of scandal – ethical scandal

KPMG Deloitte and BDO are set pay fines over their foreign affiliates trying to circumvent PCAOB probes.

VBS Bank Accounting Scandal

Type of scandal – accounting scandal

VBS Bank audit – vbs bank was placed under curatorship in 2018. KPMG partners turned out to have financial interests in the bank which made it worse for KPMG. Not only did they not spot the fraud, but they turned out to not be independent from the bank. KPMG should have also reported accounting irregularities but they did not.

Kpmg hong kong fraud

Type of scandal – auditing scandal and ethical scandal

China medical technologies defrauded investors of over $400 million. Some of these investors were in the U.S.

This was a case where the U.S. wanted to issue penalties against the U.S. listed subs of China medical technologies. KPMG Hong Kong did not comply with orders to provide workpapers. KPMG has said that they do not have the working papers.

KPMG was later freed from the suit by a judge in Massachusetts.

GE investors try to get rid of KPMG as auditor

Type of scandal – auditing scandal

After a huge write down by GE in 2018 relating to long term care insurance liabilities, investors called for a change of auditors. KPMG has been GE’s auditors for a long time.

Project management advisor to grenfell

Type of scandal – independence issue

Grenfell tower was a large building in London, UK, where a large fire occurred in 2017.  KPMG stepped down from that in january 2018. They stepped down due to a conflice of interest with a contractor that provided flammable material that may have caused the fire. They provided auditing services to Celotex which was the company that provided the potentially flammable material that was used in Grenfell tower.

Deloitte Accounting Scandals 2018

Steinhoff accounting Scandal

Type of scandal – auditing scandal

Deloitte was the auditor of Steinhoff. Steinhoff encountered financial troubles. Steinhoff investors sued deloitte in 2018.

Steinhoff audit issues were found by Deloitte in Decmeber of 2017. Investigations started in February2018.

Deloitte was fired as the auditor of Steinhoff in 2018.

Big 4 Affiliate Scandal

Type of scandal – auditing scandal

Fined by the PCAOB for work done by their foreign affiliates. $99k to PCAOB.

Carillion Scandal

Type of scandal – ethical scandal

Deloitte also got involved in the Carillion bankruptcy. They made over 10 million dollars off of Carillion over the years that Carillion was not performing well from a financial perspective, and they were called out for it.

Taylor Bean Scandal Settlement

Type of scandal – auditing scandal

Deloitte paid $150 million over failed mortgage lender. They failed to uncover errors by Taylor Bean. Deloitte was the auditor from 2002 to 2008. Deloitte settled to avoid litigation.

Gender Pay Gap

Type of scandal – ethical scandal

In the UK, the big 4 accounting firms have to disclose pay gaps between men and women. Deloitte Gender pay gap jumps to 43%. This means that women earn 43% less than men in the UK.

Ernst & Young Accounting Scandals 2018

EY Australia Sexual Harassment

Type of scandal – ethical scandal

Australia Sexual harassment allegations were made in February of 2018. Ey’s Senior Managing partner in Australia was accused of sexual harassment.

EY US Sexual Harassment

Type of scandal – ethical scandal

Ey faces sexual harassment complaint in april of 2018. The harassment occurred in a resort in Orlando in 2015. Ey later settled with the female partner who said she was groped.

PwC Accounting Scandals 2018

PwC India Scandal

Type of scandal – auditing scandal

Pwc banned from auditing in India for 2 years. Relates to their audit of Satyam. Satyam was one of India’s leading software providers. The company’s founder overstated profits by $1 billion in 2009. The securities and exchange board of india was the governing body that placed the ban on pwc india.

Colonial Bank Scandal

Type of scandal – auditing scandal

Pwc was found to be liable to the FDIC regarding their audit of Colonial bnak. PwC faced the largest ever accounting malpractice verdict of $625 million

Carillion Scandal

Type of scandal – ethical scandal

Pwc was accused of feasting on the carcass of Carillion. They were one of the big 4 accounting firms that charged Carillion millions of dollars all while Carillion was going down. They earned 21 million pounds all while Carillion was failing.

In September 2018, additional information came out that said PwC was paid 356 pounds per hour for the Carillion scandal.

PwC also managed the insolvency of Carillion and earned 50 million while doing so which also caused controversy.

Gender pay gap scandal

Type of scandal – ethical scandal

PwC had the highest gender pay gap of the big 4 in the Uk of 43.8%

Privatbank audit

Type of scandal – auditing scandal

Pwc was the auditor of Private bank from 2013-2015. Privatbank was nationalized in 2016 due to financial difficulties. They supposedly had many insider loans that weren’t paid back. Privatbank had a capital shortfall of $5.5 billion.

Ukraine Privatbank sued PwC for $3 billion dollars.

BHS Audit

Type of scandal – auditing scandal

PwC was the auditor of BHS.

BHS was a collapsed department store, and the PwC partner on the account faced a 15 year ban. The UK FRC launched an investigation in 2016. PwC was fined 6.5 million pounds as a result of the company’s collapse. They faced a 10 million pound fine, but the fine was reduced after PwC agreed to settle.

Grant Thornton

Type of Scandal – Conflict of Interest

Grant Thornton was also wrapped up in wrongdoing as far as accounting scandals go. They aren’t a big 4 accounting firm but they had to pay the largest fine by a non big 4 firm this year. They had to pay 4 million pounds in the UK in fines. They were fined by the FRC due to conflicts of interest at their audits of Nichols PLC and Univeristy of Stanford.

VBS mutual bank has gone into curatorship in South Africa. It is suspected that there was fraudulent reporting and transactions as part of this scandal. VBS bank could not account for one billion rand. VBS bank was also thought to be involved in the recent Gupta scandal in South Africa that has tarnished KPMG’s reputation.

The federal reserve bank of south Africa has launched a full investigation into how VBS bank went into curatorship.

The problem here is that VBS bank is a client of KPMG and this is yet another scandal that KPMG has to deal with in South Africa. KPMG signed off on the financials of VBS bank for the past several years without raising any concerns.

KPMG has already lost tons of clients in South Africa and now there is another huge scandal.

There are many officials calling for KPMG to be banned from auditing in South Africa.

As a result of all this KPMG suspended the lead partner on the engagement and they subsequently resigned. The partners are thought to have resigned because they had personal financial interests in VBS bank that were not disclosed.

One of the partners was the lead of KPMG South Africa’s largest business unit which was their financial services branch.

KPMG is going to launch an independent review of all the work performed in south Africa for the past 18 months. That is huge news. To review the audit work of a whole region for 18 months is a significant investment of time.

KPMG will also strengthen a whistleblowing program to prevent this from happening in the future

So those are the facts and that is the background of this case.

How KPMG South Africa have another scandal?

To me this is crazy that KPMG can have yet another huge scandal in South Africa after the Gupta Scandal. KPMG lost so many clients after that scandal that you would have thought they’d look into their files after that.

I think this latest scandal happened because a lack of leadership. It seems that KPMG South Africa operated independently of the global firm and did not have the same values and ethics of the global firm. How could you possibly have one of your most important senior partners in South Africa have an independence issue. How could he possibly have a financial interest in an audit client when he is basically the lead auditor of KPMG South Africa. That shows me that he had no fears. He had no fear of being caught, and he most likely would not have been caught if VBS bank never went under.

Is this investigation too little too late for KPMG South Africa?

I think KPMG is making good moves now by pulling all their audit files off the shelf and giving them a second look. The problem is I think it will be too little too late. I think the damage is done, and I think KPMG might have to look at closing this office down. They’ve already lost a lot of big clients in the region which means they’ve lost a lot of revenue. Now they are going to being spending a lot of money to investigate their work. If that investigation shows that there were other scandals or other independence violations, it might be KPMG going into curatorship in South Africa.

What does this mean for you

Again, similar to what we said last week when we spoke about the PwC Scandals. You should be bringing up your integrity when you speak to big 4 professionals in your recruiting process. You can also mention how you have attention to detail. The big 4 are going to want candidates who have high integrity, ethics and attention to detail after all these scandals. They aren’t going to want people that just clock in and clock out and go with the flow.

If you already work at the big 4, you need to be more diligent during your audit planning process to make sure that your team can catch issues like this. Additionally, you should also be prepared for additional training. The big 4 will no doubt have more mandatory training around ethics and integrity.

Global audits at the big 4 will also likely receive more scrutiny. For example, if you work in the U.S. or the U.K. and you rely on South Africa or other big 4 member offices, that work will receive more scrutiny when it gets quality reviewed internally and externally by the PCAOB or the FRC.

After scandals like this, the only thing that follows is more regulation and more training. The work that comes from that regulation and training always rolls downhill unfortunately. It should mean more work and more training for the leaders of these firms but it never does.

A lot happened in March 2018 for the big 4 accounting firms. A few of the biggest news stories are included below.

Top UK watchdog looks into breaking up the big 4

There have been a lot of scandals related to the big 4 accounting firms in the past few years which leads many people to say how can this issue be addressed as the big 4 don’t appear to be regulating themselves.

Many of these issues might be popping up due to improvements in technology and information. As technology increases, issues in the accounting of large companies might be spotted sooner.

As a result of all these issues, Stephen Haddrill has called for an investigation into whether the big 4 accounting firms should be broken up. Stephen is the head of the Financial Reporting Council which is the UK regulator of the big 4 accounting firms.

This comes after a series of scandals that have occurred related to the big 4 over the past couple of years the latest of which is the Carillion scandal. It seems that these large accounting firms should be experts in accounting and business since they are large professional service firms, but it seems that they just care less about learning their clients businesses the bigger they get.

The FRC believes that competition might help the big 4 become more diligent in their work. Since natural competition has not been a problem for the big 4 in more than a decade, the UK is trying to induce some forced competition by potentially breaking the big 4.

In the Carillion scandal, KPMG was the auditor and all the audit firms combined made almost 100 million dollars off carillion in the past year before their downfall.

There is obviously a huge problem when the audit firm can’t catch a problem at one of the Uk’s largest construction companies, but there is no downside into missing an issue because another big 4 benefits form the downfall. KPMG doesn’t care about losing a large audit because they know that one of the big 4 will likely have a scandal at their clients, and then they will be able to pick up an audit off of that.

What makes this worse is mandatory audit rotations. The big 4 just change clients every few years. It’s meant to increase independence and scrutiny, but it does little to increase competition.

Will the big 4 accoutning firms be broken up? Make sure to subscribe to our newsletter to find out.

PwC seen as milking the Carillion administration dry in the UK

In addition to scrutiny that the big 4 are receiving over the Carillion account, PwC is receiving a lot of scrutiny in particular over the Carillion bankruptcy in the UK.

PwC has been charging about 2.5 million pounds a week for the administration of the Carillion bankruptcy. They were accused by government regulators of milking the Carillion cow dry because this company was already going under and government agencies were trying to salvage what was left to provide money for pensions, but pwc says they are experts at being liquidators and need to be paid a hefty fee.

PwC was previously accused of being a bad actor as they used to be the accountants for Carillion and their pension funds. They made millions from that work yet they could not spot that the company was in financial trouble. Carillion is a huge scandal in Europe right now. It has many in Europe questioning whether the Big 4 should be broken up.

Foreign Affiliates of the Big 4 Penalized by SEC

Foreign affiliates of big 4 accounting firms were penalized by the SEC for auditing public companies in the United States without properly registering with the Public Company Accounting Oversight Board. The PCAOB is the regulator of the big 4 accounting firms. They audit the work of any accounting firm that audits public companies. Since the big 4 audit the large majority of the public companies in the United States you can understand how the PCAOB is their main regulator.

• BDO Canada agreed to pay a $50,000 penalty
• KPMG in South Africa agreed to pay $100,000 penalty
• Deloitte in Zimbabwe agreed to pay disgorgement and interest totaling $99,057
• KPMG agreed to pay $141,304 in Zimbabwe

PwC and KPMG release new gender pay gap numbers

The gender pay gap results of the large accounting firms have been trickling out over the past month. PwC and KPMG were the most recent accounting firms to release their numbers.

• PwC reported a mean gender pay gap of 43.8% and a median pay gap of 18.7%.
• KPMG stated that they have a 42% mean pay gap and a 27% median pay gap.

Each firm said that they have work to do in trying to even the playing field for women in the workplace. They all tried to describe factors that contribute to this issue, but they admitted that the current gap was not satisfactory.

Deloitte hires spies to head up their Cybersecurity

Deloitte hired a former UK spy to head up their Europe Cyber intelligence practice. His name is Rob Wainwright and he joinged Deloitte from Europol which is a EU intelligence agency similar to the CIA in the United States. Rob has 28 years of experience working in the MI5 in the Uk which is pretty much the same unit where James Bond worked.

This is a huge hire for Delotite. They are obviously seeing the demand from their corporate clients around cyber intelligence as more and more hacks happen. The latest news is this manipulation of datat from facebook accounts. Obviously facebook and other major corporations would like to pretect their private data and avoid huge headline risks from unknown technologies.

Deloitte plans to add an additional 500 people to its European cyber security practice alone.

Deloitte acquires leading AWS provider in New Zealand

Deloitte acquired a firm by the name of API Talent. API talent is considered and advanced AWS consulting partner. This is no surprise as deloitte continues to gobble up amazon web services providers across the globe. They seem to be the only big 4 firm actively acquiring in this space. Although the other big 4 offer these cloud services, Deloitte is the only one that is actively acquiring them.

Maybe it’s because Deloitte is the largest accounting firm in the world which provides them with enough capital to acquire other companies.

PwC begins utilizing Blockchain to audit

PwC has partnered with Northern trust to begin auditing on the blockchain. Northern trust developed a private blockchain for private equity transactions. This blockchain manages ownership shares. PwC was granted access to the blockchain as a node. They can see transactions happen in real time by participating as a node.

We actually suggested that this would happen in one of our previous blockchain articles. We suggested that the big 4 could not only audit via becoming a node, but they can also offer being a node as a services. These private blockchains need multiple nodes to work, but who can these companies trust? Well theoretically you wouldn’t trust anyone more than your trusty CPA right. Well that’s at least what we think many large companies would see with the big 4. It appears to be happening slowly.

PwC will be able to see the data as read only. This blockchain was developed using Linux Foundation hyperledger fabric.

This doesn’t surprise me because private equity firms are the most active in the blockchain space because they have been using blockchains to track ownership. This is pretty risky depending on who else is on Northern Trusts blockchain. We’ve spoken about this on other podcasts. It would be interesting to see who else is on this blockchain.

KPMG expands its masters of accounting with data and analytics program

As we have previously covered, KPMG offered scholarships to students to get a masters in data and analytics with accounting degree. They launched their pilot program at Ohio State and Villanova University. They have since expanded that to 9 universities

1. Arizona State University
2. Baylor University in Texas
3. Ohio State Max Fish College of Business
4. The University of Georgia’s Terry College of Business
5. University of Mississippi
6. The University of Missouri
7. University of Southern California
8. Villanova School of Business
9. Virginia Tech

KPMG will offer 135 scholarships to qualified students. The focus of the curriculum will focus on technology solutions like data and analytics, robotics, natural language processing, predictive analysis, cognitive capabilities, and workflow automation. All things that we’ve previously covered. KPMG is fully aware that these technologies are the future of accounting so that’s why they are investing in developing these leaders.

Sonoma Partners Joins Ernst and Young

Sonoma partners merged with E&Y in early march. Sonoma partners is a leading consulting firm that specializes in Microsoft Dynamics CRM and Salesforce CRM solutions. CRM stands for client relationship management. The transaction builds on EY’s high quality CRM offerings.

This will help EY build out their digital transformation offerings.

E&Y hires 400 people in charlotte North Carolina

EY is opening another wavespace center and this time they are opening it in Charlotte North Carolina. They will add 375 jobs over the next five years. The wavespace centers focus on new technologies in accounting like artificial intelligence and data & analytics.

EY will receive a 3.2 million tax incentive as part of the deal that will be spread over 12 years. E&Y is set to invest 8.2 million over the life of the project.

EY will pay an average of 75,000 per wavespace job. EY has wavespace centers in NY, San Francisco and Seattle.

In Summary

It is an exciting time in the big 4 as they invest heavily in technology. We’ve seen Deloitte acquire amazon and salesforce consultancies and we’ve seen pwc begin auditing blockchains. EY & KPMG are also investing heavily in tech jobs. EY opening a new innovation center in charlotte north Carolina and KPMG providing scholarships for data & analytics accountants. If you want to work for the big 4, it is extremely apparent that you need to learn about the new technologies that they are using.

It is also important that we don’t skim over the recent scandals and threats to the big 4 accounting firms existence.

It is essential that these scandals are highlighted and prevented in the future. How can they be prevented? I think they can be prevented by new technologies, but I also think big 4 partners and leadership need to be held accountable. I’m not going after the big 4 accounting firms because I am bitter. I am criticizing certain parts of the big 4 accounting firms because they can be great places to work, but the bad apples that work at the big 4 jeopardize their future. If big 4 partners on large accounts are not held more accountable, then regulators will ban the big 4 in certain countries like they have in India or they will break them up and force competition. Unfortunately, the big 4 aren’t really holding their partners accountable right now. All they do is release materials saying they are focusing on audit quality, but it those materials don’t seem to be making their way to leadership at the accounting firms.

It’s not just accountin scandals either. It’s gender pay gaps as can be seen in the latest pay gap releases from PwC and KPMG. Top executives at the big 4 need to be held accountable across the board as it relates to scandals, discrimination and equal pay.

If you want to help our push to keep the big 4 accounting firms accountable, forward this article on to a friend or colleague and start raising awareness on the need for change and need for accountability from top professionals in the big 4. For many of you, your futures will take place at these firms. Make sure that they are great places to work and start raising awareness today. Thanks for reading. Feel free to let us know your thoughts in the comments below.

There were a number of positive news stories about the Big Four accounting firms in second week of March 2018. The big 4 gained significant positive recognition and introduced new programs for community-building and social development, a complete turnaround from the criticisms thrown their way the week prior.

Deloitte and KPMG Recognized by Junior Achievement USA

Deloitte was among the 57 organizations recently recognized by the Junior Achievement USA (JA) for their continued support and invaluable contribution to JA’s community-building and education work for students across the United States. Deloitte received a gold level 2016-2017 US President’s Volunteer Service Award for totaling some 15,000 employee volunteer hours and for helping local JA offices teach students about entrepreneurship, financial literacy, and work preparedness. Deloitte Consulting LLP’s principal, Ainar D. Aijala, Jr., who received the award on behalf of the firm, proudly noted that their employees have regularly volunteered to work with JA and that the company itself donated over $1 million in 2003 to support the development of an ethics curriculum for grade 4 to 12 students.

KPMG was conferred the gold level status for the US President’s Volunteer Service Award for doing more than 15,000 hours of volunteer work to support the entrepreneurship and financial literacy program of the JA. This is the same award given to the Deloitte and their employee volunteers. Rob Arning, KPMG Foundation Chairman, described their employees as “extraordinary people” and reaffirmed the company’s commitment to curb illiteracy and unemployment by engaging middle and high school students.

Deloitte Wins In the Middle East

Next up we are going to discuss some significant investments and wins that Deloitte has made in the middle east.

Deloitte Helps Dubai’s Department of Finance

As part of its expansion program in the Middle East, Deloitte entered into a partnership agreement with Dubai government’s Department of Finance (DOF) to assist in the implementation phase of the International Public Sector Accounting Standards (IPSAS). The partnership hopes to improve the quality of financial reporting of government agencies, with the end view of strengthening transparency, reliability and accountability. Abdulrahman Saleh Al-Saleh, Director General, represented the DOF, while Maher Al-Khalil, who sits on the Board of Deloitte Middle East and is the Managing Partner of the firm’s Consulting Operations services, signed the agreement on behalf of Deloitte. This move is a testament to the government’s commitment to financial effectiveness by upholding high-quality international standards of financial reporting in the government and public sector.

Deloitte builds state of the art facility in Saudi Arabia

Meanwhile, in the Kingdom of Saudi Arabia (KSA), Deloitte will invest in building the Deloitte Digital Center (DDC) in Riyadh to support the Ministry of Communication and Information Technology (MCIT)’s thrust for digital skills development. Through this state-of-the-art facility, Deloitte not only hopes to educate the young people about digital technologies, but more importantly, “contribute to building a thriving economy and vibrant innovative society with new job opportunities for many Saudi citizens,” as Deloitte Global CEO Punit Renjen puts it.

Deloitte builds social development accelerator in the Middle East

Deloitte also intends to support the Middle East’s social development agenda by launching the Deloitte Accelerator for Social Innovation (DASI), a program in collaboration with Ashoka Arab World and Communication Design that will provide technical assistance valued at over $100,000 to organizations that adopt a viable and scalable social development and environmental protection strategy, and ideally have women in leadership roles. Two social enterprises will be chosen from the 14 countries in the Middle East and receive expert advice and training from Deloitte. Winners will also enjoy other learning and networking opportunities to further develop their plans. Deloitte Middle East Chief Executive Omar Fahoum explained that “DASI is an exemplification of Deloitte’s corporate responsibility, where we aim to positively impact the greatest number of people in the Middle East communities through our core expertise and our global Deloitte WorldClass initiative that aims to empower 50 million futures by 2030”.

These developments in the Middle East just go to show what sets the big 4 accounting firms apart from their mid tier counterparts.

KPMG Earns Record Audit Fee from General Electric (GE)

In other news, KPMG received a $142.9 million in fees from General Electric Co. (GE), the biggest so far in their more than 100 years of working together. This news came out from GE’s latest financials and proxy statement.

GE decided to stick with KPMG as their auditor for at least another year because of the firm’s institutional knowledge of the company and their accounting issues with the federal securities regulators. The amount GE paid KPMG in 2017 increased by 59 percent compared to the previous year, primarily due to the GE-Baker Hughes merger. Despite questions from a small percentage of the shareholders, GE Chief Financial Officer Jamie Miller continued to show confidence in KPMG and said that while there are no plans to let go of the firm this year, it is a discussion they have to make on a yearly basis.

KPMG Wins Carluccio’s

KPMG was also brought in by Carluccio’s, an Italian restaurant chain with 102 outlets in the UK, Turkey and UAE, to be their financial advisor amidst poor sales and performance, as well as leadership transition. Carluccio’s pre-tax profits significantly dropped from £5.2 million to only £0.98 million, which led to the closing of their restaurants in various locations.

EY ventures into robotics in Canada

EY launched their robotic services facility in Halifax – the first of its kind in Canada – in response to growing interest in digital transformation. Said facility is part of the EY Global Centers of Excellence which boasts of having completed Robotic Process Automation (RPA) projects in over 20 countries worldwide. It looks to deliver more RPA-based digital services to back office functions of Canadian companies.

The decision to build the facility in Halifax was made because it is known to be a “hub for talent and innovation” and because of its “access to a well-educated and diverse workforce, accessible airport, and a relatively affordable cost of living, per Jad Shimaly, EY Canada Advisory Services managing partner. Through this centre, EY hopes to contribute to the growth of the city and the region as a technology expert.

PwC tests tool to track cryptocurrencies

To help companies trace their digital tokens after their initial coin offering (ICO), PwC is testing a blockchain analytics tool developed by over 80 technology experts. This tool is more than a ledger. It is intended to complement the blockchain technology by enabling the user to not only track the transaction amounts, but also to locate digital coins and know how these cryptocurrencies are being used. This way, companies can lessen the risks associated with misuse and theft post-issuance, and better anticipate the potential circulations of digital tokens. PwC is looking to offer this tool to companies planning to launch ICOs.

It was a week full of damage control for the world’s leading accounting firms as they try to save their reputation and keep their clientele engaged amidst allegations of employee misconduct and large gender pay gaps.

Ernst & Young faces harassment controversy & UK gender pay gap

Take for instance, Ernst and Young’s (EY) office managing partner in South Australia, Don Manifold, who recently left his post at the firm’s Adelaide office because he was found guilty of violating their code of conduct.

After a rigid six-week investigation following sexual harassment allegations, the firm revealed that there was, indeed, a breach of workplace policies involving Mr. Manifold and a female colleague whose name was left out of the investigation report. However, the firm was quick to clarify that the sexual harassment claims against Mr. Manifold were not corroborated.

As a sign of transparency and commitment to clean their ranks of such unacceptable behaviors, Tony Johnson, Ernst and Young’s Australian chief executive, notified EY Australia employees via email about the investigation report and stressed the firm’s stance on bullying and harassment. Mr. Johnson likewise urged employees to report such cases and assured them that each report will be taken seriously and in confidence. “My ask of all staff and partners is to recognize and reward positive behaviors and to call-out unacceptable behavior whenever you see it; whether in the workplace or out of the workplace,” he said.

Mr. Manifold will be replaced by Mark Phelps, a senior auditor of the firm’s Adelaide office and is associated with several reputable organizations such as the Adelaide Football Club, Catherine House, Access2Place, and United Way SA in various capacities.

Other names were also announced to support Mr. Phelps’ new leadership team, including Linzi Carr as people partner, Mark Stewart and Craig Whiteman as service line leaders, and Ben Bishop as transaction advisory services partner.

On the heels of this controversy EY released their gender pay gap numbers in the UK. EY reported

• a mean gender pay gap of 38.1%
• and a median pay gap of 19.5%

Not only do women working at EY face harassment, but it seems like you have to earn less than the men harassing you. EY stated that they are invested in transparency around this issue, and they are also invested in over 20 initiatives to reduce the gender pay gap.

KPMG faces harassment controversy as well

It wasn’t just Ernst and Young that was all over the news last week because of a ‘scandal’. In fact, KPMG had to do damage control themselves when Adrian Lanzilli, their South Australian partner, was involved in a sexual harassment case. He, too, tendered his resignation, but without even waiting for the investigation to begin. And, yes, it doesn’t just end in Australia as KPMG’s reputation has been tarnished in the United States, United Kingdom, and in South Africa due to serious allegations of misconduct and questionable work quality.

KPMG and Big 4 Benefit Globally But Keep Scandals Local

To make matters worse, KPMG along with the rest of the Big Four accounting firms have been called out because of the way they manage controversies – either related to their employees or the actual audit work they produce – in their local partner offices. Critics say that the very nature of the organization’s structure is to blame the lack of accountability on the firms’ headquarters. Critics claim that while the firms’ global offices uphold a strong brand and reputation, and provide strategic guidance and oversight, they have little to no control over what their local employees are doing and how they are executing their work. The critics also assert the the Big Four’s global offices actually prefer it that way to keep their risk low. They want their affiliates’ issues to be resolved locally, as if putting up a firewall, so that the local noise won’t get escalated to the global level and make the firms lose their major clients. “The only time you hear ‘Well, we’re not all KPMG’ is when they get sued”, quipped Steven W. Thomas, a lawyer handling cases against accounting firms.

To address this problem, the Public Company Accounting Oversight Board (PCAOB) required accounting firms to disclose if they are working with local affiliates in conducting an audit. This move, which started last year, hopes to tighten global controls over local affiliates and protect US-based firms and their clientele. Ultimately, scandalous local offices may have to be dissociated from the global network to maintain the firm’s credibility. PCAOB Chairman William Duhnke, however, acknowledges that this might be a bit challenging given that the local affiliates are also protected by their country’s policies on licensing and ownership, and will thus be difficult to open an investigation if needed.

Deloitte Reports Huge Pay Gap in the UK

Meanwhile, Deloitte is faced with a somewhat different yet still workplace-related issue. Their UK branch is being slammed by critics for paying their female employees 43.2 percent lower compared to their male counterparts. The gap represents a wide disparity between the opportunities available to male and female workers, particularly at the senior management level. This was supported by the statement made by Emma Codd, Deloitte UK’s managing partner for talent. She said, “These calculations again serve as a stark reminder that we don’t have enough women in senior roles – this is not about unequal pay, but the shape of our firm.”

Deloitte UK revealed this information in response to the requirement imposed by the UK government to companies with over 250 staff.

Last year, Deloitte UK reported that the mean salary gap is only at 18.2 percent because they deliberately excluded highly-paid executives and partners from the equation. Political groups harshly criticized the accounting firm, as well as other global companies like Ernst and Young and Barclays for inaccurately reporting their pay gap. Lawmaker Nicky Morgan even accused them of exploiting a technical and legal loophole through their selective computations.

However, Deloitte wanted to make things right and revised their report. We “listened to the calls for firms such as ours to do more in how we report gender pay data. We are firmly committed to transparency and achieving consistency in gender pay reporting standards,” explained David Sproul, Deloitte UK’s senior executive.

Needless to say, issues like this can have a huge and lasting impact on the reputation of accounting firms and other global brands. If left unresolved, they may lead to less clients or may even throw a company to a downward spiral pretty quickly. Deloitte, partly because of controversies in their local affiliates, has actually lost six clients, which in turn, made them slide from the top to third place of the FTSE 250 auditor rankings.

PwC Moves to First Place in FTSE 250 Auditor Rankings

On a more positive note, PricewaterhouseCoopers (PwC)  added six new clients in the first quarter of 2018 shooting them to the top of the FTSE 250 auditor rankings.

• This means that PwC audits the most companies listed in the FTSE 250. They now audit 69 clients in the FTSE 250.
• KPMG took on the second spot as they audit 66 clients in the FTSE 250.
• Deloitte dropped from first to third place in the rankings after dropping 6 clients in Q1 2018. This takes them down to 63 clients in the top 250.
• EY landed in fourth as it dropped two clients and is now at 42 clients in the FTSE 250

In a move to even widen its lead, PwC created the role of a Chief Experience Officer and handpicked Roger Gagnon to be the first executive to fill up this important post. With this, PwC looks to carry out its new consulting strategy of “combining business, experience and technology to help clients accelerate their business transformations.” This role will help PwC expand their growth into marketing and design as this role will focus on user design in the technology industry.

Mr. Gagnon’s credentials, with over 15 years of working in this field across the globe, make him perfect for the job.

KPMG announced revenues of $26.4 billion dollars

KPMG reaches almost 200,000 employees

KPMG revenue grew by 4.8 %

49% of new joiners were female

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Now let’s get into the details.

KPMG announced revenues of $26.4 billion for their fiscal year ended 2017. This compares to KPMG revenues of $25.42 billion in 2016. That’s an increase in actual US dollars of 1 billion. In actual dollar growth that’s only 3.9 % of growth. If you remember when we tried projecting KPMG and PwC revenue, we said that KPMG would reach revenues of about $26.9 billion. Unfortunately, we were off by about $500 million because of KPMG’s tough year. Even though we nailed the PwC revenue of $37.7 billion.

This makes them the slowest growing of the big 4 accounting firms. Their local currency growth was only 4.8% which puts them well behind PwC which grew at 6.5%, Deloitte which grew at 7.1% and EY which grew at 6.5%.

We are going to have to dive into these numbers a little bit deeper to understand why they are so bad.

KPMG 2017 Revenue By Region

You first have to look at their regions to see where they are struggling. They made $10.48 billion in the Americas region and you have to assume that the majority of this is coming out of the U.S. In that region they only grew revenue by 4.6% which is pretty bad.

The next region that you have to take a look at is their Asia pacific region which grew by 8.9% from $4.06 to $4.42 billion in 2017. That obviously isn’t the reason their growth was bad as it is almost double what their average growth was for the year.

Lastly, Europe Middle East and Africa region grow by only 1.4% from $11.34 billion to $11.5 billion. The majority of their revenue comes from this region and you can see that it is struggling. There could be many reasons for this, but one of the biggest ones could be the KPMG south Africa scandal where they lost tons of clients because they were involved in a government fraud scheme.

It seems that KPMG is struggling to grow their Americas and EMA regions. Let’s take a look at other reasons why their revenue might be slowing down.

KPMG 2017 Revenue by Practice

Let’s look at their practices to understand how they grew in 2017. If you look at KPMG’s audit practice you can see that they grew at 2.7% from 10.12 billion to 10.39 billion in 2017. That’s pretty slow growth for an audit practice and just goes to show that audit is slowing down in growth for all the firms. The only thing that can keep their practices growing is growth in more companies going public.

Now let’s take a look at KPMG’s tax practice. KPMG’s tax practice grew by 4.9 percent from $5.56 billion dollars to $5.83 billion. That’s ok growth, but it is not going to set them apart from the other firms.

Lastly, we’ll take a look at KPMG’s advisory practice. KPMG’s advisory practice grew by 4.5 percent to 10.18 billion from $9.74 billion. All the other firms advisory practices are growing very rapidly and KPMG’s is only growing by a modest amount. That is not a good sign for kpmg.

With terrible growth out of KPMG’s audit practice and only modest growth from their advisory and tax practices, you can begin to see why KPMG had such a bad year.

KPMG 2017 Revenue by Industry

Next we’ll take a look at KPMG’s revenue by industry.

First up is KPMG’s financial services practice. KPMG’s financial services practice experienced revenue growth of 3.9 percent from $7.79 billion in revenue to 8.09 billion in revenue. Again that is not good revenue in an economy that is thriving.

Next is KPMG’s industrial markets industry practice. KPMG’s industrial markets experienced growth of 4.9% from $6.07 billion to $6.37 billion in 2017.

Next is KPMG’s consumer markets industry practice. KPMG’s consumer markets experienced growth of 5.7% from $2.82 billion to $2.98 billion in 2017.

Next is KPMG’s technology, media and telecommunications industry practice. KPMG’s technology, media and telecommunications experienced growth of 2.1% from $2.82 billion to $2.88 billion in 2017.

Lastly is KPMG’s infrastructure, government and healthcare industry practice. KPMG’s infrastructure, government and healthcare practice  experienced growth of 3.9% from $5.34 billion to $5.55 billion in 2017.

KPMG 2017 Number of Employees

Another important part of every big four accounting firms financial releases is the detail they release about their employees. This is because the big 4 make their money off of billing out their employees’ time. It’s important to understand how their people are growing in relation to their revenues.

KPMG’s number of employees grew to 197,263 from 188,982 in 2017. That represents growth of 4.4%. This explains a lot in terms of KPMG’s 2017 revenue numbers. No wonder they didn’t have a lot of revenue growth. Their people growth was slow as well. You can’t make more in a business reliant on billing out for people’s time if you don’t hire more people every year.

The number of partners at KPMG grew to 10,147 from 9,843 in 2017.

The number of KPMG professionals grew from 147,028 to 153,472 in 2017.

Professional and support staff at KPMG grew from 32,111 to 33,644 in 2017.

Another important stat for KPMG is that of their new hire class 49% were women. They have been deploying this stat all over social media.

Other Important KPMG News

KPMG also spoke about their appointment of new CEO Bill Thomas

They also highlighted their investment in KPMG Clara which we’ve spoken about previously on our site and in our podcast.

In conclusion

It was a bad year for KPMG. As the smallest big 4 firm they can’t afford not to have significant growth. It should be easier to have growth on a small number than it is on a big number, but that doesn’t seem to be the case with KPMG. They seem to be lagging far behind the other big 4 now with no sign of being able to catch up. They are going to need to make some significant acquisitions in order to come close to the other 3 accounting firms.

KPMG Joins Wall Street Blockchain Alliance

KPMG joined the wall street blockchain alliance in November 2017.

The wall street blockchain alliance is a nonprofit organization. The mission is to guide and promote comprehensive adoption of distributed ledger technology across financial markets. We do this by engaging with market participants, regulators, policymakers and technology innovators through direct communication, comment letters, studies and more to guide the public dialogue about blockchain, distributed ledger and smart contract technology, so that the financial markets can realize the full potential of these capabilities.

They will also receive a seat on the board of directors.

The wall street blockchain alliance had the following to stay about the partnership

“As one of the world’s leading professional services companies, KPMG sits at the cutting edge of Blockchain innovation across multiple segments of the global economy. We look forward to collaborating with them, as our global members and indeed the world, begin to implement Blockchain innovations across financial markets and beyond.”

Update on the KPMG #Guptaleaks South Africa Scandal

As you might remember the Gupta family got people government positions in return for favorable financial benefits. The Gupta family had powere because they were close to the south African president.

It appears that KPMG ignored significant red flags in this money laundering scandal. There were international advance payments being made to a company that KPMG audited. The advance payments were for some shares. The company that made the advance payments never received the shares.

These advance payments were made from offshore gupta family shell companies which shows signs of money laundering and corruption.

Additionally KPMG help the Gupta family set up offshore tax havens to avoid south African taxes. As more information comes out about this case, it gets worse for KPMG’s reputation.There is also word that KPMG’s outing as a bad professional service firm is GUptafying the industry. Similar to what is happening in Hollywood with sexual harassment is happening to professional service firms in South Africa. There are more investigations into the work that they are doing and more is coming up that they did not perform their jobs. Will the guptafication of professional service firms make its way to the big 4 in the united states. You’ll just have to subscribe to our newsletter to find out.

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KPMG Strengthens Tax Partnership With Thomson Reuters

KPMG also partnered with Thomson Reuters for tax services to their clients

KPMG will partner with Thomson Reuters to offer more direct tax tools that leverage Thomson Reuters Onesource tax applications.

They will offer these solutions through their Ignition centers which is their center for technological solutions for their clients.

KPMG was already offering Thomson Reuters products. This is just a stronger alliance between two partners that already had a strong working relationship. It’s a way to get Thomson permission to collaborate with KPMG’s ignition center.

KPMG’s John Veihmyer Named To Ford Motor Company’s Board

KPMG’s former CEO was appointed to the board at Ford Motor Company. This is a huge appointment for John Veihmeyer. They obviously appointed him because of his experience with financial reporting and large public companies. Its very prestigious for KPMG to get one of their former partners appoint to a large fortune 500 company.

KPMG Names New Partner In Charge of Campus Recruiting

KPMG named a new partner in Charge of campus recruiting in the United States. His name is James Powell. If you want to get some brownie points in the campus recruiting process, add him on LinkedIn and congratulate him.

KPMG Enters The Marketing Business In Australia

KPMG will be launching a marketing company in Australia and they hired a new partner to head it and launch it. This partner Carmen Bekker brings 20 years of experience to the table. She will launch a CMO advisory business for KPMG. They will advise clients and chief marketing officers on how best to run their marketing campaigns and engage with customers.

KPMG is catching a lot of heat over work that they performed for the gupta family in south Africa. The gupta family is accused of improperly influencing government contracts. They apparently got very cozy with the President of South Africa, Jacob Zuma. After creating a great relationship with the President Jacob Zuma they then were able to make illegal profits in the billions of rand which is the south African currency.

 

 

That news has been unfolding over the past year, but the blow up around KPMG and Mckinsey has just been growing over the past week. The main controversy is that KPMG did not conduct proper audits that could have unfolded the scandal as KPMG was the auditor of Gupta family investments for over 15 years. Their were four partners that also attended a Gupta family wedding that might have been paid with taxpayer dollars.

This is a pretty huge scandal in south Africa that has destroyed at least one company and that company was bell pottinger LLP which was a pr firm. It has also impacted McKinsey consulting.

McKinsey which is a worldwide consulting firm is also getting heat for work that they did for the Guptas as well. McKinsey is facing fraud and corruption charges whereas KPMG is not

John Veihmeyer, KPMG’s global chairman, made the following statement about the incident

“I sincerely apologise for what went wrong in KPMG South Africa. This is not who we are,” said John Veihmeyer. According to John Veihmeyr KPMG undertook an investigation of their South African firm and found that there were a number of failings in reports prepared for the South African Revenue Service by KPMG south Africa.

KPMG cleared out its South African leadership on Friday September 15 after it found that work it did for firms owned by the Gupta family “fell considerably short” of its standards. It found no evidence of crimes or corruption, however. There were 8 executives that had to leave KPMG South Africa as a result of this scandal and there are other employees that are suspended or could be suspended.

The Gupta family and President Zuma have denied the allegations.

KPMG has been losing clients this week starting on September 19, 2017. One of the clients that they lost was Hulisani which is a south African investment company. They said that they decided to fire KPMG due to the reputational risk.

Another client that KPMG lost in the region was Sygnia which is an asset manager in South Africa. There are other clients reviewing their current relationships with KPMG like Barclays Africa Group and Nedbank.

In conclusion, this huge scandal seems to be still unfolding and getting worse by the day. It is increasingly getting worse for KPMG to the point where the global chairman is getting involved and having to apologize for what occurred. It is also impacting client relationships to the point where KPMG is losing their clients. This is just another huge accounting scandal for the big 4. There have been huge controversies at KPMG, EY, Deloitte and PwC recently. KPMG alone just fired their heads of the audit practice in the US for getting a heads up regarding an audit from the PCAOB. It seems that there is a serious lack of ethics and work ethics in the accounting firms that needs to be addressed. Will the accounting firms be able to address this or will scandals continue to pop up as the lack of ethics increases.

KPMG Misses the Mark on Miller Energy Audit

KPMG settled charges in the amount of $6.2 million on August 16, 2017 with the SEC for their audit of Miller Energy. They agreed to settle charges without admitting any wrong doing.

Miller energy was previously charged with accounting fraud. They overstated the valuation of their oil and gas properties. Something that the company bought for $5 million was valued at $500 million dollars. This helped the company go public which they most likely shouldn’t have.

I mean come on man. As a partner you don’t notice an exponential appreciation in oil and gas assets? This just proves that most partners have no idea what they are doing despite their title. It’s more about their years in a chair.

The next two pieces of news relate to PwC fines. Both fines were levied in August of 2017. This is obviously a bad month for PwC and for big 4 accounting firms.

 

PwC August 2017 Fines

PwC Fined Over Audit of Merrill Lynch

First lets go over PwC’s botched audit of Merrill Lynch.

SEC rules require brokerages to hold customer money in segregated accounts that are shielded from creditor claims. Unfortunately Merrill lynch did not do this and they exposed billions of dollars to creditors claims. They were fined $400 million by the SEC and now PwC has to pay up for completely missing all of this as their auditor. They had to pay the PCAOB $1 million which seems like chump change compared to the amount that Merrill had to pay.

PwC Fined Over Audit of RSM Tenon in the UK

Next up is a fine that originates in the UK. PwC set a record in the UK. They were hit by the largest ever fine of 6 million pounds. This is the largest ever fine levied by the Financial reporting council. The FRC found extensive misconduct by PwC on the audit of RSM Tenon. Hysterically, RSM tenon was an accounting firm. It was the UK’s 7^th largest accounting firm before it went belly up. PwC did not obtain sufficient audit evidence and did not exercise professional skepticism. I think that is fancy wording for say that PwC didn’t see RSM Tenon’s demise coming.

 

So wow that’s a huge month of accounting fines and settlements and we are only halfway through August. Make sure to subscribe to our newsletter to stay up to date on the latest accounting news.

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