I was reminded of the late , unlamented old fraudster as I read the JDS’s damning verdict on KPMG’s handling of the audit of Independent Insurance.
Fining the firm £500,000 plus costs of £1.15m, the JDS said the conduct of KPMG and lead audit partner on the account Andrew Sayers ‘fell seriously below’ expectations.
The complaints revolved around Independent’s purchase of ‘stop-loss’ insurance to cover a downturn in its business in 1999. That downturn continued through 2000 and in January 2001 KPMG was informed that further insurance was being bought with the apparent result that for a premium of £77m, Independent could turn a loss of £105m into a profit of £22m.
Though suspicious Sayers only sought a letter from management that all was well, apparently ignoring the advice of his ‘concurring partner’ to seek confirmation of the policies from the reinsurers.
He was not told of a pledge of £141m by Independent to the reinsurers plus a different stop loss policy which required the payment of £1.6bn over four years in premiums.
There are several parallels with Maxwell here. In both cases clients acted fraudulently.
And just as the JDS said last week an ‘auditor in good standing should … have sought independent third party evidence … and engaged in a full and open discussion with the audit committee’, so in the Maxwell case it noted ‘a failure to achieve an appropriate degree of objectivity and scepticism’.
Just as firms are warning of rising instances of fraud as the economy turns down, we should be aware not all auditors will be sufficiently robust in dealing with clients seeking to cut corners and protect business.
Damian Wild is group editor in chief of Accountancy Age
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