Why Auditors Never Caught FIFA’s Corruption

For accounting enthusiasts (or people simply in the accounting industry), the corruption scandal that sent waves through a multi-billion dollar non-profit known as FIFA with hundreds of member associations, is a fantastic case study in fraud and corruption. For football enthusiasts, the corruption scandal is a peek into the dark arts and methods beyond the field. But both of these enthusiasts and industries have little in common, and are unable to describe what is happening on their end to each other. I hope in this article to bridge that gap, as an accounting student pursuing my CFE and a massive football fan.

So firstly, what exactly was FIFA’s $150 million corruption scandal? It is mostly individual executives within FIFA selling and brokering votes to FIFA member associations for World Cup hosts through bribery, lining their own pockets. The other main aspect of the scandal was member association employees and executives skimming and misappropriating funds from FIFA and taking a cut of exorbitant television deals. The definition of skimming by the ACFE (Association of Certified Fraud Examiners) is “the theft of cash from a victim organisation prior to its entry in the organisation’s accounting system.” In 2015, the United States Department of Justice (DOJ) indicted officials involved in this corruption. That is when the scandal began, but the scandal truly began long, long ago. FIFA’s rampant corruption was to the point that the DOJ opened a racketeering investigation into the organisation. That means there was coordinated conspiracy involved in committing this corruption. Rumours were flying in the general public/news media that FIFA was full of bribery and corruption, so why was it so hard for FIFA’s long-time auditors KPMG to notice this?

My theory is that, it wasn’t exactly hard for KPMG to not notice, it is that they chose not to look at the corruption. So before I get into that, for my football enthusiasts who don’t know the difference between a debit and credit, let me explain what auditors do. An audit firm is a firm made up of Certified Public Accountants that complete taxes but mostly prepare and review (audit) financial statements for mostly public companies, but also governments, private companies, non-profits, etc. In fact the firm KPMG prides itself on being experts on organisations like FIFA. From MarketWatch: “Though not a publicly traded company, FIFA is required by Swiss law to be audited by a qualified firm because of its size as measured by revenue and number of employees. KPMG Switzerland actually claims to be an expert in not-for-profit association audits in Switzerland, including sponsoring a “competence center” to share knowledge inside and outside the firm.” Auditors review financial statements as I mentioned earlier, but they do far more. They review internal and external controls, they review the underlying health of a company, they offer consultation regarding transaction or mergers and acquisitions.

So now we know what an auditor does, so how does such a prevalent one drop the ball? Let us start with who KPMG is: one of the “big four” accounting firms. There used to be more firms before mergers, acquisitions, and shut downs due to failing to detect and sometimes being involved in accounting scandals. Because there are less firms, the tail wags the dog in the accounting industry with little diversity in competition. That leads to comfort and conceitedness by firms. In that same vein, KPMG have been FIFA’s external auditors since 1999. Audit teams are required to rotate ever 5 years for publicly traded companies (of which FIFA is not). However, these multiple audit teams can be (and often are) in the same audit firm. Who could blame FIFA and KPMG for keeping so tight for so long? Auditing is expensive, so if you have the same auditors coming in each year, both organisations will save money because of familiarity. KPMG may even give a familiar firm a sweetheart deal on audit fees. These audit firms are seemingly chasing audit fees more than they are chasing integrity, and I predict another big accounting scandal will hit and rock this industry.

So now we know FIFA is rotten to the core and that audit firms don’t mind being bedfellows with their clients, what exactly happened with KPMG and FIFA? Well after ripping into the accounting industry this entire article, I will give them the benefit of the doubt here. These $150 million in bribes and kickbacks were largely done in cash and wire transfers, something very hard to detect. FIFA’s financial statements are voluntarily published on their website, and anyone can see no issues there. KPMG did not find anything that would amount to a “material” misstatement or impact that would warrant bringing concerns to or reporting to outside agencies. But they should have seen something, and said something. What should they have seen? A lack of controls. Any cash disbursements to employees in or by FIFA itself should be restricted to payroll expenses only, any other transactions of that sort should have clearly spelled out responsibilities for executive approval. Even worse, KPMG was the auditor and adviser for both the Qatar and Russia World Cup host bids. These bids were were the corruption is appeared to have been centered, and it was prompted the DOJ to investigate FIFA. KPMG was the auditor for FIFA, many member nations named in the indictments, and the investigation-starting World Cup bids. How could no connection be made? In auditing, if a client has rumors swirling around it that there is corruption and fraud, the auditor will classify that client as a “high risk engagement,” meaning there will be far more scrutiny in their audits of said clients. It seems KPMG was too cozy to consider FIFA high risk.

FIFA called it “a welcome change” when KPMG resigned as its auditor in June 2016. PwC, another one of the “big four” firms took over as FIFA’s auditor in September 2016, but already are being scrutinised for letting more corruption happen. From ProMarket: “The latest scandal alleges Samoura, who earns almost $800,000 annually, hired a Swiss firm called SCJ, which has a long-term contract with FIFA, to clean her home but FIFA paid the bill instead. According to Der Spiegel, the new PwC auditors found out about the misdirection of funds in the beginning of 2017. Instead of informing the FIFA executive director or a FIFA board committee such as the Audit and Compliance Commission, PwC allegedly tipped off Samoura personally and she agreed to quietly pay back the funds.”

…Quietly pay back illegally obtained funds, in an organisation just rocked with one of the world’s largest corruption scandals? If KPMG behaves like its fellow big four firm PwC, it seems that the external auditors for FIFA are hardly external in terms of relationships. They are doing all in their power to make FIFA look good in the public sphere by handling corruption internally (which is ineffective, especially with such high amounts) and possibly just straight up turning a blind eye to corruption in the hope that it will pass and the audit firms can continue to look good to both their clients and the public. Audit firms chase audit fees and flashy clients. FIFA officials chase contracts that will line their pockets. Football players chase the ball in a game that is siphoned from and suffers, as we ultimately do when corruption is allowed to run rampant.

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