KPMG wins plaudits for detecting City scam

KPMG found itself on both sides of the fence in City scandals this week after investment banking group Morgan Grenfell, one of the audit firm’s biggest clients, saw its fund management arm plunged into crisis following the discovery of financial management irregularities. Only days before, KPMG was credited with unearthing a multi-million pound financial scam at Hong Kong-based fund manager Jardine Fleming.

KPMG’s involvement at Morgan Grenfall is likely to be examined by IMRO, the City watchdog, which has been called in by the German-owned bank to determine the extent of the problem.

In contrast, the Hong Kong arm of KPMG spent five months working for IMRO and the Hong Kong Securities & Futures Commission investigating Jardine Fleming. The firm was subsequently fined # 400,000 and last week volunteered to pay investors in four of its leading funds over # 12m compensation.

Jardine Fleming discovered in 1993 that its leading fund manager was booking successful deals to his own account while failed trades were deposited in client accounts. The company denied that it had suffered irregularities in its 1994 report to the regulators. When it finally reported the affair last year, the SFC and IMRO employed KPMG to launch an investigation.

The activities of the auditors to the four Jardine Fleming funds affected remain shrouded in mystery. Unlike the Barings collapse, questions about the activities of the external auditors are omitted from the report. Price Waterhouse, Coopers & Lybrand and Ernst & Young escaped censure in the final SFC/IMRO report on the affair, despite the two year wait before irregularities came to light.