Dive Brief:
- Singing River Health System was forced to make an $88-million adjustment on its books because of systematic errors in audits performed by their former accounting firm, according to a lawsuit the provider filed against KPMG LLP late last week.
- "KPMG's abject, egregious failures in auditing Singing River's financial statements led to an $88-million adjustment, one of the largest reported adjustments in history, and should have been, would have been, and was ultimately detected by a competent auditor," the lawsuit said.
- The mistakes made by KPMG were apparently caught by Horne LLP, who were hired in 2013, after SRHS fired KPMG after three decades of working with them and their corporate predecessors. While performing a fresh audit, Horne discovered the $88-million shortfall that resulted from reporting bad debts as revenue, the lawsuit stated.
Dive Insight:
KPMG has been getting dinged a lot lately for poor auditing practices. According to the the US Public Company Accounting Oversight Board's website, the body harshly criticized KPMG for poor auditing practices in October of last year.
"The PCAOB's 2013 inspection of KPMG found that 23 of the 50 audits examined were identified as having problems, a deficiency rate of 46% compared to 34% the previous year," the site stated. "The issues highlighted suggested the firm had not obtained sufficient evidence to support its audit opinions or to demonstrate it had tested internal controls effectively. The board also noted instances where there were problems with the firm's response to the risks of material misstatements."
To make matters more interesting, a local newspaper is reporting that the mistakes SRHS claims KPMG made in auditing the system's pension fund may not have been mistakes at all. The paper's report said that the KPMG audit reflected that SRHS simply stopped making contributions to the pension fund around 2010, while telling fund participants that they were still contributing to the fund.
So, is KPMG guilty of massive incompetence? Or is SRHS using the lawsuit to mask the ongoing scandal surrounding its pension fund? The answers to both questions could be "yes."
Want to read more? You may be interested in this story about the SRHS' trustees' refusal to resign.