ANOTHER CULPRIT IN THE CREDIT CRUNCH

It looks like the accountants helped to screw us over again. Is it time to regulate them?

Inquiry Assails Accounting Firm in Lender’s Fall
By VIKAS BAJAJ
Published: March 27, 2008
NT Times
A sweeping five-month investigation into the collapse of one of the nation’s largest subprime lenders points a finger at a possible new culprit in the mortgage mess: the accountants.

New Century Financial, whose failure just a year ago came at the start of the credit crisis, engaged in “significant improper and imprudent practices” that were condoned and enabled by auditors at the accounting firm KPMG, according to an independent report commissioned by the Justice Department.

E-mail messages uncovered in the investigation showed that some KPMG auditors raised red flags about the accounting practices at New Century, but that the KPMG partners overseeing the audits rejected those concerns because they feared losing a client.

The important point here is that it's the partners, the people who create and sustain the corporate culture at KPMG, who are the culprits.

A number of years ago (in the 90s), I had access to transcripts of a focus group composed of junior members of KPMG. Several of the participants complained that they could not be completely truthful about any troublesome facts about the company they were auditing because the partners wouldn't stand for it. It seems that nothing has changed.