KPMG Sued Over United Way Embezzlement
Big Four firm KPMG is being sued by a Lansing, Michigan branch of United Way after the discovery of a $1.9 million embezzlement by the branch's former finance chief.
"The United Way hired experts to protect itself," said United Way lawyer, Powell Miller. "We think if they had done their job properly, this wouldn't have happened."
Employees of Capital Area United Way discovered the embezzlement, which is estimated to have occurred over a period of at least seven years. Former vice president for finance, Jacquelyn Allen-MacGregor, worked for the United Way for 20 years, during which time she wrote more than 300 checks to herself on the United Way account, forging the required signatures of co-signers, then destroying the cancelled checks. The checks were not posted to the United Way books but instead were recorded as pledges never received.
In February of this year, Ms. Allen-MacGregor pleaded guilty to the embezzlement, saying she used the stolen funds to purchase horses for her business, Celebration Quarter Horses. This spring the United Way has been able to recover nearly half of the stolen money by cashing three theft insurance policies and by selling some of Ms. Allen-MacGregor's assets.
The agency hopes to recover additional funds from its two accounting firms, KPMG, which acquired the Lansing area branch of CPA firm Main Hurdman, former auditor for the Capital Area United Way, and Maner, Costerisan & Ellis. The United Way is pursuing arbitration with Maner, Costerisan & Ellis but may pursue action in court at a later date.
The lawsuit against KPMG claims the audit firms KPMG and Main Hurdman were negligent and that they should have detected the embezzlement. Main Hurdman audited the Capital Area United Way from 1985 through 1998. Maner, Costerisan & Ellis performed the 1999 through 2002 audits.
"We think if they had done their job properly, this wouldn't have happened," said Mr. Miller.
- 1688 reads
- login or register to post comments
- Send to a friend
it does not appear KPMG was overly negligient
It sounds like the embezzler did not get too greedy or carried away with her embezzlement since it went on for 7 years. I wish I knew how the employees found it. According to statistics, most embezzlements are found by other employees. The only way KPMG could have caught it was if they happened to pick a bank statement that had a missing cancelled check and they could not find this check number in the cash disbursements journal. Or they happend to sample an unreceived pledge and it could not be verified. It does not look like KPMG was overly negligient.
This fraud was done very cleverly.
Auditors ARE required to detect fraud ...
Tom Tone wrote that "Once again, the public thinks that we are ... responsible for detecting fraud," implying that Tom thinks this is an unfair or incorrect public expectation.
As a matter of fact, we have been "responsible for detecting fraud" since 1989 when SAS 53 was issued. SAS 53, SAS 82, and now SAS 99 all require auditors to provide reasonable assurance of detecting material misstatements in financial statements whether caused by error or fraud.
KPMG's first line of defense likely will be that the amount embezzled was not material.
KPMG and the United Way
Once again, the public thinks that we are guarantors of all financial information and responsible for detecting fraud. I do hope that they fight this one and beat it. We have enough trouble with the public's perception that we should be required to find fraud.
Now, if they were the low bidder to win the work and then cut corners putting the "C" team on the audit, then they will probably get what they deserve.