Two KPMG Auditors Charged For Failed Bank Audit
The Securities and Exchange Commission charged two auditors at KPMG for their roles in a failed audit of a Nebraska-based bank that hid millions of dollars in loan losses from investors during the financial crisis and eventually was forced to file for bankruptcy.
The SEC previously charged three former TierOne Bank executives responsible for the scheme. Two executives agreed to settle the SEC’s charges, and the case continues against the other.
The new charges in the SEC’s case are against KPMG partner John J. Aesoph and senior manager Darren M. Bennett. The SEC’s investigation found that they failed to appropriately scrutinize management’s estimates of TierOne’s allowance for loan and lease losses. Due to the financial crisis and problems in the real estate market, this was one of the highest risk areas of the audit, yet Aesoph and Bennett failed to obtain sufficient evidence supporting management’s estimates of fair value of the collateral underlying the bank’s troubled loans. Instead, they relied on stale information and management’s representations, and they failed to heed numerous red flags when issuing unqualified opinions on TierOne’s 2008 financial statements and the bank’s internal controls over its financial reporting.
“Aesoph and Bennett merely rubber-stamped TierOne’s collateral value estimates and ignored the red flags surrounding the bank’s troubled real estate loans,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Auditors must adhere to professional auditing standards and exercise due diligence rather than merely relying on management’s representations.”
To read the SEC news release, click here.