New Senate Report Reveals KPMG's Willful Ignorance in Lead-Up to Collapse of Troubled Banks

[WASHINGTON, DC] - U.S. Senator Richard Blumenthal (D-CT), Ranking Member of the U.S. Senate Permanent Subcommittee on Investigations (PSI), released a final Minority Staff Report today, marking the end of the Subcommittee's probe into KPMG's audits of three major American banks prior to their collapse.

Today's report concludes a 28-month long investigation into KPMG's unqualified audits of Silicon Valley Bank, Signature Bank, and First Republic Bank, each of which the auditing firm had certified as representing their numbers fairly and accurately to the public, weeks, if not days before their collapse. Among its findings, PSI's investigation revealed that KPMG had years-long awareness of the banks' problems that precipitated each their eventual failures and had put depositors and investors at risk.

"KPMG ignored the warning signs that Silicon Valley Bank, Signature Bank, and First Republic Bank were unstable-justifying their patterns of risky and questionable decisions to issue clean audits in the days leading up to their failures," said Blumenthal. "Our PSI report exposes KPMG's willful blindness and stresses that significant reforms to the auditing industry are needed to promote transparency and better protect consumers."

PSI's investigation spanned over 400,000 pages of documents and nearly 100 hours of briefings and transcribed interviews with auditors and regulators. A summary of PSI's key takeaways is below:

• KPMG had years-long awareness of the problems at the banks that precipitated each bank's eventual failure, but either ignored or justified these concerns, leaving the depositors and investors unaware of the banks' deficient recordkeeping, troubled risk management, and other concerning practices.

• The auditing industry is significantly underregulated and in need of reform. The agency charged with regulating the auditing industry, the Public Company Accounting Oversight Board ("PCAOB"), has been undermined by the deeply entrenched auditing industry from its creation. In practice, auditors create their own standards and follow their own rules.
• The 2023 bank collapses harmed thousands of people. Millions more could have lost their savings and investments if these collapses had triggered more bank failures in their wake. KPMG has thus far faced no meaningful consequences for how it conducted these audits, highlighting the need for Congressional action.

Based on these findings, PSI's report also includes recommendations for reforming how independent auditors are regulated. A summary of these recommendations is below:

• Congress should require increased competition for audit firm engagements to enhance auditor independence, reduce the likelihood of a conflict of interest, and promote an object evaluation unencumbered by longstanding relationship biases.

• Congress should clarify that it is entitled to receive inspection information regarding auditing firms. Current ambiguity in the Sarbanes-Oxley Act prevents Congress from accessing information from the PCAOB regarding its inspections, which may be useful information to Congress as it decides on appropriate policy relating to the auditing industry. Congress should remove this ambiguity and clarify that the PCAOB must produce inspection information to Congress upon request.

• Congress should require enforcement actions in the auditing industry be made public. The confidentiality provisions in the Sarbanes-Oxley Act impose strict limits on what the PCAOB can disclose about its oversight of audit firms.

• Congress should create an Office of the Whistleblower to provide actionable information regarding auditors. The creation of this office at the PCAOB will expand whistleblower incentives that would provide more accountability to the auditing industry, increase transparency, and provide greater investor protection.

The full text of PSI's Minority staff report is available here.

-30-

• Print
• Email
• Share
• Tweet