From Francine McKenna:
“Of all the individuals and firms tied up in the scandal over bribery and corruption at FIFA, scrutiny has so far largely escaped KPMG, the soccer association's external auditor.”
That's the summary, and our quote of the day. The article continues:
“The accounting and consulting firm's Swiss member is responsible not only for the audit of the multibillion-dollar umbrella FIFA organization, and has been since before the period under scrutiny by U.S. and Swiss prosecutors, but also audits a large sample of member associations around the world that receive FIFA funding on an annual basis. KPMG also prepares a compilation of all financial reports after the completion of each four-year World Cup cycle.
KPMG was also the auditor and adviser for the official Russia and Qatar organizing committees when they prepared the winning bids that are now targeted in corruption investigations in the U.S. and Switzerland. KPMG continues to support Russia's organizing committee, while Qatar switched to Ernst & Young in 2011.”
And here's a particularly pathetic detail:
“The transactions highlighted by the DOJ indictment may not have met KPMG's materiality threshold, given the size of the organization.”
Enough said.
Hat tip: Alex Cobham of TJN, and first posted on the Tax Justice Network blog.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
The materiality excuse is specious and a reasonable person would suspect it to be a distortion of an opinion that stated something very different.
Materiality, in the valuations I’ve worked on, refers to uncertainties in calculation, errors, small trading losses that with causes that are broadly known but not large enough to investigate in detail.
Any hint of dishonesty, even a dollar, is considered material, and it is reportable. Fraud, bribery, deceiving a customer or an illegal act – and, most especially, any discrepancy in sums passing to and from individuals and jurisdictions where there is additional scrutiny for money laundering – it is quite definitely ‘material’.
Agreed
“The basic function of an audit as currently practised is to confirm that reported transactions actually took place, not to root out dishonesty.”
…. said someone at some time.
But of there is evidence of risk to the organisation the audit role changes
There was evidence of risk
But as I well know, you are incapable of perceiving the need for change
Perhaps they prefer to play the man rather than the ball.
As a budding junior accountant this both bothers and confuses me, in much the same ways the well known facts about representatives from all of the big 4 accountancy firms are or have been involved in selling tax avoidance. Even as an AAT qualified accounts technician, I am required to sign up to my governing bodies (AAT) code of ethics, which I won’t go into word for word, but outlines a number of activities I will not participate in and a commitment to be honest, transparent and fair in all the work I carry out as an accounts technician. I have no doubt the governing bodies of qualified accountants and auditors will also have an ethics policy it’s members must sign up to.
For me, it just beggars belief therefore that given the access to information and the role of external auditors, there has as yet been neither criticism nor questioning of KPMG as FIFA’s external auditors. Despite the limited information we have about exactly what has been going on at FIFA, what we do know leaves only two possibilities concerning KPMG. Either they didn’t know what was going on (which I don’t believe) and therefore they are incompetent as an external auditor, or they did know and choose to cover it up, which I believe makes them equally culpable in law.
Equally, I cannot get my head around why, to the best of my knowledge, none of the representatives from the big 4 have been called before their governing bodies ethics committee for their role in selling tax avoidance on what Margaret Hodge called “an industrial scale” and summarily dismissed. The only conclusion that I can come to is that the governing bodies are toothless and therefore unable to regulate the profession.
Agreed on just about all counts
Not least the last
Surely the problem is that if you audit FIFA’s accounts you look at FIFA’s transactions, not corrupt payments made directly to individuals? I am not aware of any corporate audits that review the financial situation of individuals connected to the company, or what powers an auditor could possibly have to facilitate it.
As such I don’t know how the auditor of FIFA could be expected to uncover this, but if you could explain how the auditor of FIFA would be expected to discover evidence of this sort of activity I would be very interested.
Such payments are not uncommon
Vey clearly KPMG must have been aware of this risk – it has been reported for years
In that case they had a duty to investigate in all means possible – of which I suspect there were plenty
There is no evidence that they did that I know of
My question was really how the auditor could check these details and discover the corruption. They might have suspected it was happening, but it is difficult to see how they could have come up with any evidence of it. Are you suggesting they should have asked for bank statements from all FIFA officials to check for bribes, and even if they had how would they have known they had statements for all bank accounts?
Checking these sorts of details if difficult enough for tax authorities and their powers are far greater than those of an auditor.
Auditors could have expressed an opinion stating their doubts that the books and records recorded all the transactions relating to FIFA and its activities
That would have been sufficient
They did not
Without defending FIFA, (who could?) or KPMG (likewise), it seems much of the corruption was facilitated by FIFA but didn’t go through it. E.g we know now that the SA FA paid Jack Warner a huge amount directly. This was said to be a grant to the football associations of the West Indies (one may assume little if any of it got there) & is now described by the SA Govt as a grant to encourage football development in the African diaspora.
In fairness, I don’t think an auditor can pick up things like this.
This comes down to, I think, a bigger problem which I’ve long bleated on about. If a chap arrives at the auditor’s office in a Porsche, wearing nothing that isn’t Gucci & Armani, & says “I’d like you to audit my company accounts”. If those accounts seem to balance & no huge incomings or out goings cause concern, the auditor doesn’t care, & isn’t encouraged to, how the Company Director is living like he is on a reported Director’s wage of £15k pa.
But the auditor does have a duty to think that way and act on doubts
It’s simply wrong to say otherwise
Not really a surprise. The banking sector is littered with examples of situations that auditors should have picked up and challenged, but chose not to. It’s little different to ratings agencies and their ratings of financial products – paid by the issuers of those products.
‘How tough do you want our fee negotiations to be, and do you want to keep the audit?’
As an auditor (non big 4) I can say that the international standards are financial statement driven, so payments made directly to delegates might indeed not get picked up by the audit firm directly, *but*
SO much emphasis has been placed on risk assessment, knowledge of the client, background information, specific risks of fraud and bribery etc.; it would be inconceivable that an audit planned under international standards would not, in the case of FIFA, highlight bribery as a high risk area. The fact that they must have identified FIFA as being at a high risk of bribery and still apparently didn’t spot any suspicious transactions suggests a lack of professional skepticism of alarming proportions.
That being said, the accounts probably complied with IFRS so it’s all good!
You highlight the contradictions
The audit has to look for the bribery if it is a known risk BUT an audit is actually now about complying with IFRS, not true and fair according to the ICAEW (although legally I am not alone in suggesting they have got that wrong in UK law, at least)