“How many internal auditors does it take to change a light bulb? None! They’re not allowed to under Health & Safety legislation. Process notes should have been written referring the incident to Facilities.” Old accountancy joke
They are a dry old bunch, auditors. But what they lack in humour, as can be seen from that old accountancy gag, they make up for in money. It might be dull, but as the saying goes, it’s nice work if you can get it.
Arsenal paid its auditors £155,000 during the 2013-14 season. They did a bit of other stuff, relating to tax and whatnot, taking the full fees to £201,000. What with its New York Stock Exchange listing, Manchester United’s accountants did even better, earning £719,000 that season and fully £1.5 million the year before, owing to the work they did ahead of its stockmarket launch.
However, what FIFA’s auditor, KPMG, was paid for its work in Zurich we cannot tell. For some reason, and contrary to general disclosure requirements, it chooses not to publish the amounts it pays in audit fees in its annual financial report. Moreover, KPMG refused to tell me when I asked. This is important, because auditors have a number of functions.
Chief among them is that they act as the guarantors of the transparency, accountability and honesty of the entity they are auditing. It is pretty troubling if they are not even willing to say how much they get paid by a not-for-profit organisation, particularly at what is so controversial a time for FIFA. This should matter to KPMG: when scandal-hit Enron collapsed back in 2001, the failings of its then auditor, Arthur Andersen, caused the big-four accountant to be brought down with it.
It is not as if KPMG is unaware of its responsibilities. As it states in its auditors’ report to FIFA’s financial statements for 2008: “An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.”
In 2008 new laws were introduced in Switzerland stipulating that auditors must make sure firms introduce adequate internal controls. These should act as a first line of defence against the damaging errors and fraud in firms that auditors are paid so handsomely to guard against. Yet whether KPMG has fulfilled its remit is now very much in doubt.
This week, as even those furthest removed from the football world now know, the US Department of Justice indicted 14 football officials and sports marketers alleging wire fraud, racketeering and bribery. Although in large part these activities related to cash movements from sports-marketing firms to the football officials, FIFA as a body corporate was not untouched by the indictment.
Page 83 of the indictment describes how it has found sufficient evidence to allege that during the bidding for the destination of the 2010 World Cup, the disgraced former FIFA vice-president, Jack Warner, solicited bribes to vote for South Africa. Initially, it is claimed, the South African government was going to pay it but could not find a way to carry out the payment. So eventually the cash made its way to Warner via Zurich: “Arrangements were… made with FIFA officials to instead have the $10 million sent from FIFA – using funds that would otherwise have gone from FIFA to South Africa to support the World Cup – to the Caribbean Football Union [CFU].
“In fact, on January 2, 2008, January 31, 2008 and March 7, 2008, a high-ranking FIFA official caused payments of $616,000, $1,600,000, and $7,784,000 – totaling $10 million – to be wired from a FIFA account in Switzerland to a Bank of America correspondent account in New York, for credit to accounts held in the names of CFU and CONCACAF, but controlled by the defendant Jack Warner, at Republic Bank in Trinidad and Tobago.”
If the allegations contained in the indictment are proved, then it would seem to reflect a very serious failure of the KPMG auditors and the processes they oversaw at FIFA. FIFA’s financial statements make clear that in 2008 only $15 million in total was paid to confederations throughout the year. Yet those three payments each constituted substantial slugs of that global sum: 4.11% of it on January 2, 10.67% of it on January 31 and fully 51.89% of it on March 7.
KPMG’s auditors, Fredy Luthiger and Alex Fähndrich, were satisfied that there was no risk here. Even though these very large proportions of confederation disbursements were made to regions controlled by Warner as then-president of CONCACAF and of the CFU. And of course this was also at a time when he was also a FIFA vice-president.
As FIFA’s financial statements made clear: “All member associations and confederations have to provide FIFA with an audited financial statement every year. Additionally, FIFA arranges a central audit of 21 member associations each year through its statutory auditors KPMG to ensure that all financial assistance payments are invested correctly.”
If what the US Department of Justice is saying is true then very obviously KPMG has utterly failed to ensure that these financial assistance payments are invested correctly. And if so, this is an extremely worrisome situation for football.
FIFA’s financial-assistance programmes are the lifeblood of football development. FIFA spent $1.052 billion between 2011 and 2014 on infrastructure projects around the world. It pays KPMG to make sure these funds are not abused and people in the grassroots of football’s beneficiary nations must rely on the quality of its work.
Yet if such a very obvious red flag of multiple six- and seven-figure payments being made to the same region controlled by the same senior FIFA official over one financial quarter is overlooked, what faith can we have in KPMG’s ability to protect football development? What if the inadequacy of auditory oversight of those payments has allowed football officials all over the world to embezzle freely from football’s funds? That would make the “rampant, systemic and deep-rooted corruption” alleged by the Department of Justice in the CONMEBOL and CONCACAF regions seem a somewhat parochial matter.
KPMG refused to discuss anything about the alleged payments in 2008 or how it as auditor had satisfied itself that they were made honestly. It would not talk about whether it felt the alleged Warner payments were isolated or if there was a risk of repeat in other regions. It entertained no discussion about FIFA’s internal controls. And, as stated above, it certainly had nothing to say about what fees it picks up from FIFA.
It may be germane that in February this year, KPMG was fined a total of £479,000 over multiple breaches by it and by members of staff of the Financial Reporting Council’s Ethical Standards for Auditors relating to conflicts of interest. One of the FRC’s findings of misconduct related to a breach of client confidentiality.
Perhaps this is why KPMG has so steadfastly refused to discuss anything about the FIFA case. It told me in a one-line statement: “As FIFA’s statutory auditor, we are bound by professional confidentiality and have to refrain from any comment regarding our client.”
But the most pressing question from me was not one about FIFA at all, rather about KPMG and its own internal controls. Luthiger and Fähndrich both remain KPMG Switzerland directors, the latter still a signatory to the FIFA audit report in 2014. KPMG responded neither to whether it was examining its FIFA account nor to whether it was holding an internal investigation into the events of 2008. These seem very legitimate questions about KPMG itself, whatever the concerns of client confidentiality.
As scandal surrounds FIFA, and innuendo swirls that the national associations who support the political status quo due to their ability to put their noses in pork-barrel projects or, worse, misappropriate funds therefrom, grassroots football needs FIFA’s auditors to be vigilant.
Because if not, then the joke is on our game.
Journalist and broadcaster Matt Scott wrote the Digger column for The Guardian newspaper for five years and is now a columnist for Insideworldfootball. Contact him firstname.lastname@example.org.