Wells Fargo has decided to ask their shareholders to ratify KPMG as their auditor for next year despite the fact that they did not catch the fraud occurring at Wells Fargo.
Why Is This A Big Deal?
As you might remember Wells Fargo faced a bit of controversy in 2016 when it was discovered that many of their employees were creating fake accounts for many of their customers. 5,300 Wells Fargo employees participated in this fraud. This fraud spanned 5 years, and KPMG was the auditor for all 5 years.
Supposedly the fake accounts were created because the CEO wanted to push employees to have customers open more accounts. He wanted every customer to have 8 accounts, and his rationale was that 8 rhymed with great. I’m sure another rationale is that if you have 8 accounts, you’ll forgot one and just leave money sitting there or you’ll overdraw them since you have so many accounts. I’m bet there are all kinds of fees associated with these accounts as well.
All of these shenanigans did not sit well with Elizabeth Warren. Elizabeth Warren is a Senator on the Senate Banking Committee, so this fraud fell squarely into her cross-hairs. Elizabeth Warren questioned Wells Fargo over this fraud and sent a letter to KPMG questioning their audit of Wells Fargo. KPMG never sent a public response to Elizabeth Warren, so we will have to see if Elizabeth warren comes out and says something about this potential ratification of KPMG for the 2017 audit.
Elizabeth Warren questions KPMG over Wells Fargo
KPMG Audit Clients
Now let’s get back to KPMG. Not only did KPMG sign off on the financials for these years, but they also signed off on the controls of Wells Fargo. How can you sign off on the controls of a company that is trying to create another division solely on building fake accounts for customers.
I’m sure that Elizabeth Warren will not be pleased with this decision to ratify KPMG as the auditors once again.
Another thing that isn’t very optically pleasing in the proxy statement was the amount of compensation that the outgoing CEO earned in 2016. John G Stumpf retired in 2016 most likely because of all the heat he was receiving. His compensation for the 2016 year amounts to more than $20 million. He had the most golden of parachutes. The new guy, Timothy Sloan, received only $13 million in 2016. He only became CEO in late 2016, so I’m sure we’ll see his pay ramp up to $20 million 2017 to be commensurate with Mr. Sloan’s former pay.
Both of these items in the proxy statement are essentially raising a middle finger to Elizabeth Warren and the people that were defrauded by the fake accounts.
Reason Why Wells Fargo Is Choosing KPMG Again
Wells Fargo states that they should stick with KPMG because KPMG or its predecessors have audited Wells Fargo since 1931. That is basically the only reason that Wells Fargo came up with as to why they chose KPMG.
I’m sure Elizabeth Warren will not be satisfied with this reason. KPMG was not only the auditor during the financial crisis, but they were there for this fake account fraud.
It’s customary to list a number of reasons why you want to retain the audit firm you have used in the past. Wells Fargo does not do that. They really just explain the logistics of ratifying the auditor.
If you want to see an example of what I’m talking about, look at GE’s proxy statement. They list a number of reasons why they retain KPMG as their auditors.
Despite tons of controversy in 2016, Wells Fargo has chosen to stick with big four accounting firm KPMG as their auditor. We’ll have to see whether Elizabeth Warren or shareholders have anything to say about this appointment. Subscribe to our newsletter to keep up to date.
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