Another Revisit to Madoff and His Charity Stakeholders – Has an Upgrade in Compliance Compromised Auditor Independence for Yeshiva University? – Part III – Installment 24March 16, 2010 – Articles White Collar Defense & Compliance Blog
This is the twenty-fourth in a series of installments on this blog that are discussing issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Defined terms and links not otherwise contained in this Installment are included in Installments 22 and 23.
This Installment is Part III of an analysis of recent public financial reporting of Hadassah and Yeshiva. In earlier Installments 22 and 23, I stated my view that Yeshiva provided significantly greater credibility, disclosure and transparency relative to Madoff and related matters through its Form 990 filing than Hadassah did in its Forms 990. However, information now obtained from the Internet may indicate that recent moves by Yeshiva to improve its compliance program and processes may have compromised the independence of its auditor KPMG LLP (“KPMG”).
The facts identified are as follows:
1. On April 3, 2009, Alan Kluger, an attorney and Tax Managing Director of KPMG, executed, as Preparer on behalf of KPMG, the Form 990 of Yeshiva for the year ended June 30, 2008 (the “Yeshiva Form 990”).
2. On April 24, 2009, Bloomberg.com reported, “Yeshiva University’s trustees approved new conflict of interest measures after the school lost millions of dollars in the fraud involving Bernard Madoff, a former trustee.”
3. On November 12, 2009, Alan Kluger executed, as Preparer on behalf of KPMG, the Forms 990 of The Hadassah Foundation, Inc. and of Hadassah Medical Relief Association, Inc., for the short year ended December 31, 2008, copies of which were obtained upon request from Hadassah.
4. On November 18, 2009, KPMG signed its Independent Auditor’s Report for Yeshiva relating to its Consolidated Financial Statements for June 30, 2009 and 2008 (the “2009 Yeshiva Financial Statements”).
5. Mr. Kluger’s LinkedIn entry indicates that he served KPMG as Tax Managing Director from August 2006 to November 2009.
6. There is a description on “indeed®” that describes a former job posting on Jobs.com from seven months ago for the position of Director of Tax and Compliance at “Yeshiva University Alumni [sic?] - Bronx, NY” that is no longer available. The posting described the position at Yeshiva University in part as follows:
Reporting to the Executive Director of Financial Services, the Director of Tax and Compliance will plan, develop and lead tax management activities for the University in consultation with the Vice President for Business Affairs and CFO and staff (Treasurer, Chief Investment Officer, Director of Internal Audit, and Executive Director of Financial Services and will consult regularly with the University’s General Counsel.
[Emphasis supplied. Note that the position relates to the University, not its “Alumni.”]
7. The LinkedIn entry for Mr. Kluger indicates that he currently holds the position of “Director of Tax & Compliance, Yeshiva University.” No commencement date is given in the entry.
Clearly the sequence of events indicates efforts by Yeshiva to upgrade and expand its compliance activities. In recruiting Mr. Kluger, Yeshiva retained a highly experienced attorney from a “Big 4” accounting firm. However, there are questions raised by the departure of Mr. Kluger from his senior position at KPMG in November 2009 to his new senior position at Yeshiva, contemporaneous with the completion by KPMG of the 2009 Yeshiva Financial Statements. Even if Mr. Kluger had no involvement from July 1, 2008 to November 18, 2009 with the preparation of the 2009 Yeshiva Financial Statements, which is difficult to believe in light of his position with KPMG and his history with Yeshiva as a client, he had signed the Yeshiva Form 990 on April 3, 2009.
Yeshiva is a non-profit corporation and is not subject to the rules of the Securities and Exchange Commission (the “SEC”) as to auditor independence. Nevertheless, Yeshiva should have sufficient concerns in the aftermath of the Madoff scandal and as an entity with $1.6 billion in consolidated net assets as of June 30, 2009, to raise awareness and effectiveness of its compliance program by using “best practices” in maintenance of auditor independence. In this regard, the Office of the Chief Accountant (the “OCA”) of the SEC has stated the following as to “Audit Committees and Auditor Independence”:
Certain relationships between audit firms and the companies they audit are not permitted. These include:
Employment relationships. A one-year cooling off period is required before a company can hire certain individuals formerly employed by its auditor in a financial reporting oversight role. The audit committee should also consider whether the hiring of personnel that are or were formerly employed by the audit firm might affect the audit firm's independence.
Clearly, Yeshiva did not observe the one-year cooling off period mandated by the OCA for public companies. Query whether the audit or other appropriate board committee or the Board of Trustees of Yeshiva considered the question of auditor independence in the circumstances of the hiring of Mr. Kluger.
[To be continued in Installment 25]