The PCAOB’s fine of $100,000 against Scott Marcello, former vice chair of audit for New York-based Big 4 firm KPMG, last week made history in two ways: It was biggest monetary penalty the oversight agency has ever levied, and it was a first “failure to reasonably supervise” sanction.
The case reaches back to March 2016. The PCAOB’s order says that Marcello failed to supervise KPMG personnel who were involved in illegally obtaining and using confidential PCAOB information to improve KPMG’s PCAOB inspection results. The firm had experienced a high rate of audit deficiency findings in prior inspections.
Initially, Marcello did nothing upon learning of these misdeeds despite being a “supervisory person” under the Sarbanes-Oxley Act, the corporate reform legislation of 2002. In 2017, he was again informed of the receipt of confidential PCAOB information and again did nothing, according to the National Law Review. He only reported the issue to KPMG’s in-house counsel after other KPMG personnel informed him that if he did not elevate the issue, they would. KPMG terminated Marcello in April 2017.
“Knowing that his subordinates may have been involved in unethical or illegal behavior, Mr. Marcello failed to take steps required of someone in his position,” said Patrick Bryan, director of the PCAOB’s division of enforcement and investigations, in a statement. “This action sends a strong message that firm leadership must take their supervisory responsibilities seriously.”
The National Law Review opined, “The PCAOB may well intend to aggressively pursue audit firm officers who fail to reasonably supervise audit personnel and appropriately report any violations. Whether this action proves to be unique or the start of a larger enforcement trend remains to be seen.”
