Deloitte and KPMG being investigated over involvement in 1MDB scandal

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(Jan 25): The Malaysian Securities Commission is looking into Deloitte and KPMG, two of the world's largest audit firms, to find out if they were aiding and abetting in the 1MDB scandal, or were merely negligent, South China Morning Post reported.

The Securities Commission is looking into the firms to determine if they were “were aiding and abetting in this scandal, or merely negligent. The accountants must be held accountable”, a source close to the matter told SCMP.

Anti-graft activist Cynthia Gabriel, who also serves on an investigative committee set up to assist in the nation’s 1MDB probe, said the audit firms were “a party to the fraud. The personnel involved should be duly punished. Evidence of wrongdoing has been produced — the Auditor-General’s report, the Public Accounts Committee’s report. In fact, KPMG is working at nullifying the audit report 2011-2012”.

According to SCMP, KPMG may be negotiating a deal with the Malaysian authorities.

In mid-2018, KPMG released a statement claiming that the books it had audited for 2010, 2011 and 2012 were not “true and fair” assessments of 1MDB’s funds, and that it lacked full access to relevant documents that were only declassified when the new government took power.

When asked by SCMP to confirm the investigation, the Securities Commission refused to divulge details, only saying that its review of the “conduct of auditors in relation to 1MDB audits is still ongoing”. After completing the review it will assess its findings before deciding on the next step.

Deloitte and KPMG did not respond to repeated requests from SCMP for comment.

KPMG signed off on 1MDB’s accounts for 2010, 2011 and 2012, while Deloitte was appointed to do the same in 2013 and 2014 after KPMG was reportedly sacked for asking for more information about 1MDB's assets.

Deloitte quit after the US Department of Justice filed lawsuits to recover assets acquired with misappropriated 1MDB funds, saying that its audit reports should no longer be relied upon. No accounts have been filed since 2015, although Parker Randall was appointed after Deloitte, SCMP reported.

Top political economist Edmund Terence Gomez said the audit firms involved had already admitted to evidence of irregularities and so thorough investigations had to be carried out.

“This is not uncommon: look at the Enron scandal. But when such scandals break, auditors are implicated. Who checks the auditors and makes sure they are doing their jobs? If international audit firms are not doing their jobs, who can we turn to?” he said, suggesting that Malaysia should put in place an independent audit regulator, similar to countries like India which did so in response to its own national audit scandals.

Gomez said that disciplinary action by professional regulatory body, the Malaysian Institute of Accountants (MIA), was insufficient to punish any wrongdoing.

The MIA is currently looking into Deloitte and KPMG’s conduct, but it cannot hand down punishments sterner than a fine of up to RM5,000 or termination of membership.

Nurmazilah Mahzan, MIA’s chief executive officer, told SCMP that the committee was still deliberating over the inquiry into the audit firms. “So far both [Deloitte and KPMG] have been cooperative, but remember this is a disciplinary tribunal for MIA members and not a court.”