Former KPMG partner, David Middendorf, was sentenced this week to a year and a day in prison for his role in a fraudulent scheme to acquire a regulator’s confidential plans in an attempt to get a leg up on audit firm inspections. The ex-KPMG exec was also sentenced to three years of supervised release.
The former national managing partner for audit quality at KPMG, Jeffrey Wada, a former inspections leader at the Public Company Accounting Oversight Board, and four others were convicted in March of multiple counts of fraud. The PCAOB inspects the audit work performed by registered accounting firms. Prosecutors said several former employees of the board, including Wada, helped funnel details about its inspection plans to leaders of KPMG, who used the information to make changes to their already completed audits.
KPMG Exec Sentenced
“As the head of the KPMG department responsible for the quality of its audits, David Middendorf was at the top of a chain of corruption that threatened to corrupt KPMG and the PCAOB’s inspections process,” said Manhattan U.S. Attorney Geoffrey S. Berman in a statement. “Today’s sentence recognizes the harm this fraudulent scheme caused to the PCAOB and the auditing profession more generally.”
Middendorf, KPMG employee Cynthia Holder, and others worked to illicitly acquire valuable confidential PCAOB information concerning which KPMG audits would be inspected in an effort to game the system and improve inspection results, the Department of Justice noted in a statement announcing the sentencing. For example, beginning in 2015, Brian Sweet, a former PCAOB employee who had joined KPMG, provided Middendorf, Thomas Whittle, and others with the PCAOB’s confidential 2015 list of inspection selections so that the information could be used to improve KPMG’s performance on PCAOB inspections.
In August, Holder was sentenced to eight months in federal prison and two years of supervised release for her role in the scheme. Wada is still awaiting sentencing. 