Back in 2017 an associate partner from Deloitte LLP was fined and severely reprimanded for misconduct in relation to his work with Equity Syndicate Management Limited (ESML) and his capacity as external actuary of Lloyd’s Syndicate 218. At the time, the same matter involving another audit firm was still being looked into; now, following a hearing last October, penalties for KPMG LLP have been determined.
KPMG has been slapped with a £6 million fine on top of a severe reprimand for misconduct. In addition, the audit firm has agreed to undertake a further internal review and report to the Financial Reporting Council (FRC) on certain aspects of its audits of insurance undertakings in 2018.
Meanwhile KPMG partner Mark Taylor and former partner Anthony Hulse have been severely reprimanded and fined £100,000 each. Moreover, Taylor has agreed to the imposition of a requirement to have a second partner review of his audits until the end of next year.
As for former ESML director Douglas Morgan, he has been excluded from Chartered Institute of Management Accountants membership for two years. Costs orders have also been made against the respondents.
“The findings of misconduct and sanctions follow FRC investigations in relation to the preparation and audit of Lloyd’s Syndicate 218 (Equity Red Star) Report and Accounts for the years ended December 31, 2007, 2008, and 2009 and the provision of actuarial advice to Equity Syndicate Management Limited in relation to ESML’s reserving for Lloyd’s Syndicate 218 between 2007 and 2009, matters referred to the FRC in 2012,” noted the regulator, which said a formal complaint was delivered in August 2016.
“The misconduct of KPMG and Mr Taylor arose from KPMG’s 2008 and 2009 audits of the financial statements of Syndicate 218. The findings against Mr Hulse relate only to the 2009 audit. Mr Taylor was an associate partner and the responsible individual for the audit of Syndicate 218 and Mr Hulse was the audit engagement partner for the ultimate UK parent undertaking of the corporate member of the syndicate.”
An independent tribunal found that insufficient enquiries were made regarding the claims file review process and that warning signs of deterioration in Syndicate 218’s claims reserves were not acted upon. Consequently, there was not enough evidence to provide an unqualified audit opinion.
ESML reported a deterioration of an estimated £311 million in respect of net ultimate claims for the 2009 and prior years of account.
“Mr Morgan’s misconduct arose from claims file reviews carried out within the business, and under his direction, and which involved claims reserves held by the syndicate being reduced to meet a pre-determined target,” added the FRC.
“The tribunal found that the reviews were ‘wholly improper’ and further that Mr Morgan had failed to ensure that proper records were made, or that the reviews were properly disclosed to the board, the syndicate’s external actuary, or the auditors.”
