February 22, 2006
SEC Settles Xerox Audit Fraud Charges with Four KPMG Accountants
The SEC settled its securities fraud case related to improper accounting at Xerox with the four remaining defendants, all of whom were partners at the company's outside auditor at the time, KPMG. The four are: Ronald Safran, engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, senior engagement partner for 2000; Anthony Dolanski, engagement partner for 1997; and Thomas Yoho, the SEC concurring review partner for KPMG on the Xerox engagement from 1997-2000. Safran, Conway, and Dolanski agreed to the entry of an injunction, with Safran and Conway paying civil penalties of $150,000 and Dolanski paying a $100,000 penalty. Yoho settled a separate administrative proceeding brought by the Commission and was censured. According to the SEC's Litigation Release (here), the audit fraud allowed Xerox to manipulate its earnings by over a billion dollars during the relevant period:
The SEC alleged in its federal court complaint that, in the course of serving as engagement partners for Xerox, Safran, Conway and Dolanski allowed Xerox to impose topside accounting adjustments that they knew or should have known did not comply with GAAP. The SEC alleged that these partners failed to adequately test, or require Xerox to test, the assumptions Xerox used to justify its topside adjustments, nor did they test, or demand that Xerox test, to determine if the topside adjustments resulted in financial statements that fairly presented Xerox's financial results. The SEC further alleged that, as a result of this conduct and other conduct alleged in the complaint, the engagement partners failed to exercise the professional care and skepticism required under GAAS and instead authorized the issuance of the KPMG audit reports that contained the false and misleading representation that KPMG conducted its audits in accordance with GAAS, and that Xerox's financial statements presented fairly, in all material respects, Xerox's financial position and results of operations in conformity with GAAP. The settled SEC Order against Yoho finds that he engaged in improper professional conduct by failing to exercise appropriate due care and professional skepticism when he conducted an "in depth" review during the 2000 audit.
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