A former KPMG partner has agreed to pay $100,000 as part of a settlement of Securities and Exchange Commission charges stemming from his audit of Xerox Corp., which had been accused of improper accounting practices. Joseph T. Boyle, the copier maker’s relationship partner on audits from 1999 through 2000, also agreed to a one-year suspension as an accountant. As relationship partner, he served as the go-between linking the audit firm to Xerox’s board.
Without admitting to or denying the SEC’s findings, Boyle consented to an injunction, penalty, and SEC Order. “Auditors, including relationship partners, are gatekeepers who bear special responsibilities in the financial reporting process,” says Linda Chatman Thomsen, the commission’s director of enforcement. “Auditors who fail to perform those legal duties risk meaningful sanctions.”
The SEC had charged that while serving as the relationship partner, Boyle was told by the audit engagement partner that Xerox was involved in improper accounting. The engagement partner also allegedly told Boyle that KPMG had a “professional obligation” to communicate those concerns to Xerox’ audit committee.
Despite the warnings, Boyle didn’t report the likely violations to the audit committee or take other steps required by Section 10A of the Securities Exchange Act of 1934, according to the regulator.
Boyle retired from the firm in 2003. The New York Times reported that Samuel J. Winer, a lawyer with Foley & Lardner in Washington who represents the Boyle, said: “Mr. Boyle, who has been retired for nearly two years, is pleased that the S.E.C. dropped all but one of the charges against him and looks forward to continuing his retirement without the distraction of litigation.”
The relationship partners at audit firms “play a critical role in ensuring that important information makes its way to the issuer,” says Paul Berger, an associate SEC enforcement director. “When the relationship partner, or any auditor, becomes aware of information indicating that an illegal act may have occurred, it is imperative that such information be immediately conveyed to the audit committee and, if necessary, the full board.”
The SEC stated that its civil fraud injunctive action against four other KPMG partners involved in the Xerox audits is ongoing. The commission previously announced that it had settled enforcement proceedings against KPMG, Xerox, and six former senior Xerox executives.
In April, KPMG agreed to pay $22.5 million to settle SEC charges related to its audits of Xerox from 1997 through 2000, the largest payment ever made to the commission by an audit firm. Under the terms of the deal, the firm agreed to give up the $9.8 million in fees it got for auditing Xerox’s books during that time, and pay $2.7 million in interest and a $10 million civil penalty.
For all of its Xerox-related actions, the SEC has obtained a total of more than $54 million in civil penalties and disgorgement, according to the commission.