The KPMG Scandal & Beyond: Navigating the high stakes of independence in the ITAM world.
by Tony Crawley
The news of KPMG receiving a record ￡21 million fine for its inadequate auditing of Carillion seems almost insignificant, when compared to the devastating financial and societal repercussions caused by Carillion’s eventual demise. Carillion's downfall left nearly ￡1 billion in debt, over ￡500 million in pension deficits, and approximately 30,000 unpaid subcontractors. You can read more about this in the following link:?BBC News Article.
For IT Asset Management (ITAM) practitioners, this situation serves as a valuable discussion point regarding the necessity of independence and objectivity within our own industry.
As the BBC article goes on to discuss, in addition to the ￡21 million fine imposed on KPMG, members of the audit team have been personally fined hundreds of thousands of pounds for a notably high number of errors, some of which were "intentional, deliberate, or reckless".? The Financial Reporting Council (FRC) also highlighted a significant "risk to their objectivity" with regards to KPMG due to Carillion's status as a vital client. This phrase, "risk to their objectivity" is especially significant for the ITAM and FinOps industry.
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Software Resellers and their objectivity risk
In the ITAM and software industry, a similar level of risk from a lack of objectivity and impartiality emerges when software resellers provide advice to clients on their software purchases, as the reseller is set to gain financially from the software procurements. The level of risk is heightened further by the software market's displaying the key characteristics of a mis-selling industry, with complex pricing and high sales incentivisation.
In short, highly incentivised sales operations can manipulate complex pricing to drive software deals that may not be in the client's best interests. These characteristics can be identified in other mis-selling markets like pensions, mortgages, and mobile phone contracts. It's worth noting that the era of hyper complexity (driven in part by the convergence of FinOps, ITAM and GreenOps), ever increasing price complexity further exacerbates this risk for end users.
The KPMG scandal bares similarities to the Enron scandal, in which Arthur Andersen (a top-tier consultancy firm) had secured lucrative non-audit consulting work from Enron. As a result, Arthur Andersen was hesitant to raise valid "Red Flags" about Enron's true financial health, as this could jeopardise their relationship and, by extension, their potential revenue.
Lessons need to be learnt from these examples, comparisons can be made to when software resellers are providing advice on software that the reseller will directly earn revenue from, in these situations there is clearly a "risk to their objectivity". It’s curious that in most other commercial interactions with consultancies, this situation is specifically and contractually prohibited....
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To read the full article including analysis of acquisition activity, click here :