By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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64 ICAEW Joint Disciplinary Scheme
fines KPMG £ 1.6 million.
In its latest batch of disciplinary orders and
regulatory decisions, the ICAEW has found KPMG at fault for its work on the 2000
audit of Independent Insurance Group.
The firm “accepted that loss could be turned to
profit by using stop loss insurance which was too good to be true”. KPMG’s audit
partner, named as a Mr. Sayers, was advised by the firm’s concurring partner to
confirm the stop loss terms directly with the reinsurers. No reason was provided
for why the audit partner failed to do this. Independent’s actuaries, Watson
Wyatt, told Sayers that they “did not understand why the reinsurers were writing
these contracts when they appear to be obviously loss making.”
It subsequently turned out that Independent had
agreed to pledge £ 141 million as a condition of obtaining the stop loss, and
there were further agreements which limited the liability of the reinsurers and
sought to pass risk on to an Independent subsidiary. In addition, a different
stop loss contract required the payment of a premium of £ 1.6 billion over four
years. Shortly afterwards Independent’s Chief Executive resigned and the company
went into liquidation.
Eight years after the event, KPMG were finally
reprimanded by the Institute, fined £495,000 and ordered to pay costs of £ 1.15
million.
(Source : Internet Newswires, 8-8-2008)
