With the scandal over Andersen’s involvement with the unfolding Enron Corp. fiasco dominating the news, the Securities and Exchange Commission has censured KPMG LLP for engaging in improper professional conduct.

The SEC sanctioned the firm because it purported to serve as an independent accounting firm for an audit client at the same time that it had made substantial financial investments in the client. The SEC found that KPMG violated the auditor independence rules by engaging in such conduct. KPMG consented to the SEC’s order without admitting or denying the SEC’s findings.

In addition to censuring the firm, the SEC ordered KPMG to undertake certain remedies designed to prevent and detect future independence violations caused by financial relationships with, and investments in, the firm’s audit clients.

The SEC found that, from May through December 2000, KPMG held a substantial investment in the Short-Term Investments Trust, a money market fund within the AIM family of funds. According to the SEC’s order, KPMG opened the money market account with an initial deposit of $25 million on May 5, 2000, and at one point the account balance constituted approximately 15% of the fund’s net assets.

In the order, the SEC found that KPMG audited the financial statements of STIT at
a time when the firm’s independence was impaired, and that STIT included KPMG’s audit report in 16 separate filings it made with the SEC on November 9, 2000. The SEC further found that KPMG repeatedly confirmed its putative independence from the AIM funds it audited, including STIT, during the period in which KPMG was invested in STIT.

The SEC concluded that KPMG’s lack of adequate policies and procedures constituted an extreme departure from the standards of ordinary care, and resulted in violation of the auditor independence requirements imposed
by the SEC’s rules and by Generally Accepted Auditing Standards.

“The SEC’s decision to censure KPMG reflects the seriousness with which the SEC treats violations of the auditor independence rules, even in the absence of demonstrated investor harm or deliberate misconduct,” said Stephen Cutler,
the SEC’s director of enforcement.