| UNITED STATES OF AMERICA | |
| Before the | |
| SECURITIES AND EXCHANGE COMMISSION | |
| SECURITIES EXCHANGE ACT OF 1934 | |
| Release No. 91186 / February 23, 2021 | |
| ACCOUNTING AND AUDITING ENFORCEMENT | |
| Release No. 4205 / February 23, 2021 | |
| ADMINISTRATIVE PROCEEDING | |
| File No. 3-20230 | |
| In the Matter of | |
| JENNIFER M. STEWART, CPA, | |
| Respondent. | |
| ORDER INSTITUTING PUBLIC | |
| ADMINISTRATIVE PROCEEDINGS | |
| PURSUANT TO SECTION 4C OF THE | |
| SECURITIES EXCHANGE ACT OF | |
| 1934 AND RULE 102(e) OF THE | |
| COMMISSION’S RULES OF | |
| PRACTICE, MAKING FINDINGS, | |
| AND IMPOSING REMEDIAL | |
| SANCTIONS | |
| I. | |
| The Securities and Exchange Commission (“Commission”) deems it appropriate and in the | |
| public interest that public administrative proceedings be, and hereby are, instituted against Jennifer | |
| M. Stewart (“Stewart” or “Respondent”) pursuant to Section 4C of the Securities Exchange Act of | |
| 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. | |
| II. | |
| In anticipation of the institution of these proceedings, Respondent has submitted an Offer | |
| of Settlement (the “Offer”), which the Commission has determined to accept. Solely for the | |
| purpose of these proceedings and any other proceedings brought by or on behalf of the | |
| Commission, or to which the Commission is a party, and without admitting or denying the findings | |
| herein, except as to the Commission’s jurisdiction over them and the subject matter of these | |
| proceedings, which are admitted, Respondent consents to the entry of this Order, as set forth | |
| below. | |
| 2 | |
| III. | |
| On the basis of this Order and the Respondent’s Offer, the Commission finds1 that: | |
| A. SUMMARY | |
| 1. Starting as early as 2013, the College of New Rochelle (the “College”) began | |
| experiencing considerable financial challenges resulting from declining student enrollment and | |
| decreasing tuition revenues. During fiscal year 2015, the College’s then current Controller, Keith | |
| Borge (“Borge”), engaged in a fraudulent scheme that involved numerous fraudulent | |
| misrepresentations and omissions in order to conceal the College’s financial challenges. | |
| 2. KPMG LLP (“KPMG”) was the College’s independent auditor during the relevant | |
| period. For fiscal year 2015, Stewart was the engagement manager assigned to the College’s audit. | |
| In that capacity, Stewart failed to comply with American Institute of Certified Public Accountants | |
| (“AICPA”) auditing standards (“AICPA Standards”) during the College’s fiscal year 2015 audit. | |
| Specifically, Stewart’s violations of the auditing standards stemmed from her failures to: (1) obtain | |
| sufficient appropriate audit evidence; (2) properly prepare audit documentation; (3) properly | |
| examine journal entries for evidence of fraud due to management override; (4) adequately assess | |
| the risk of material misstatement; and, (5) exercise due professional care and professional | |
| skepticism. These numerous and pervasive audit failures significantly reduced the audit team’s | |
| ability to detect Borge’s fraud. | |
| 3. Notwithstanding these audit failures, Stewart authorized, and the engagement | |
| partner provided final approval for, the issuance of an audit report for fiscal year 2015 stating that | |
| the audit was performed in accordance with generally accepted auditing standards2 (“GAAS”). | |
| This statement was false in that the audit was not performed in accordance with GAAS. | |
| 4. Pursuant to a 1999 bond offering, the College was contractually obligated to | |
| provide annual continuing disclosure information to investors, including audited financial | |
| statements. Stewart should have known that the audit report, along with the College’s fiscal year | |
| 2015 financial statements, would be submitted to the Municipal Securities Rulemaking Board | |
| (“MSRB”) for posting in its Electronic Municipal Market Access (“EMMA”) system pursuant to | |
| the College’s annual continuing disclosure requirements. | |
| 1 The findings herein are made pursuant to the Respondent’s Offer of Settlement and are | |
| not binding on any other person or entity in this or any other proceeding. | |
| 2 Generally accepted auditing standards for audits of entities not subject to the oversight authority of the | |
| Public Company Accounting Oversight Board (PCAOB) are promulgated by the AICPA. | |
| 3 | |
| B. RESPONDENT | |
| 5. Jennifer M. Stewart, age 34, of North Hempstead, New York, is a Certified Public | |
| Accountant (“CPA”) licensed to practice in New York. Stewart began her employment at KPMG | |
| in 2008 as an Associate and was subsequently promoted to Senior Associate in 2010, Manager in | |
| 2013 and Senior Manager in 2015. Stewart’s employment with KPMG ended in March 2020. | |
| Stewart served as the KPMG engagement manager on, and authorized the issuance of the audit | |
| report for, the College’s fiscal year 2015 audit engagement. Stewart also served as the KPMG | |
| engagement manager on the College’s audit engagements for fiscal years 2013 and 2014. | |
| C. OTHER RELEVANT ENTITIES | |
| 6. KPMG LLP is a Delaware limited liability partnership headquartered in New York | |
| City. KPMG is registered with the PCAOB and is the U.S. member firm of the KPMG global | |
| network of independent member firms affiliated with KPMG International Limited, a private | |
| English company limited by guarantee. KPMG was the College’s auditor for fiscal year 2015. | |
| 7. The College of New Rochelle was a private, not-for-profit education corporation | |
| based in New Rochelle, New York, with additional locations in New York City. The College | |
| ceased operations and filed for bankruptcy in September 2019 as a result of its financial challenges. | |
| 8. Keith Borge, age 64, of Brooklyn, New York, served as Controller of the College | |
| during fiscal year 2015 and began employment with the College in 1979 as Assistant Controller. | |
| Borge was responsible for perpetrating the fraud described herein. Borge pled guilty to criminal | |
| securities fraud charges on March 28, 2019 and is currently serving a 3-year sentence in federal | |
| prison. On the same day the SEC filed a complaint in the U.S. District Court for the Southern | |
| District of New York against Borge which was subsequently settled on July 2, 2019. | |
| D. FACTS | |
| Borge’s Fraud | |
| 9. Starting as early as spring 2013, the College began experiencing financial | |
| challenges resulting from decreases in student enrollment and tuition revenues. To bridge the | |
| increasing gap between the College’s revenues and expenses, Borge began using funds in the | |
| College’s endowment to pay for operating expenses. The consumption of these funds resulted in a | |
| rapid decrease in the College’s net assets, from approximately $30.5 million at the conclusion of | |
| fiscal year 2012 to negative $8.8 million at the conclusion of fiscal year 20153. | |
| 10. In order to conceal the precipitous decline in the College’s net assets, Borge | |
| engaged in a fraudulent scheme, the result of which overstated assets and understated liabilities of | |
| the College. For example, Borge intentionally withheld payroll tax remittances from federal, state | |
| and local authorities starting as early as fiscal year 2013. However, instead of reporting the payroll | |
| tax liabilities in the College’s financial statements, Borge recorded a series of improper and | |
| 3 The College’s fiscal year ended on June 30. | |
| 4 | |
| unsupported journal entries, which concealed the payroll tax liabilities in the College’s general | |
| ledger and financial statements. Borge also hid numerous past due vendor invoices in his office, | |
| thereby preventing them from being recorded in the College’s financial statements, and allowed | |
| receivables to be reported at inflated values. | |
| 11. As a result of Borge’s fraud, the College’s fiscal year 2015 net assets were | |
| overstated by $33.8 million, an overstatement which impacted virtually every amount reported on | |
| the College’s balance sheet. | |
| KPMG’s Audit of the College’s Fiscal Year 2015 Financial Statements | |
| 12. KPMG performed the College’s financial statement audits during the relevant | |
| period culminating with the fiscal year 2015 engagement. Stewart was the engagement manager | |
| for the fiscal year 2015 audit responsible for the day-to-day supervision of the audit team and | |
| executing the audit plan, with a focus on completing work papers and resolving open items. | |
| Stewart was a member of KPMG’s Higher Education, Research and Other Not-For-Profit | |
| (“HERON”) dedicated practice group and had extensive experience auditing higher education and | |
| not-for-profit entities. | |
| 13. In the spring of 2015, the KPMG audit team assigned to complete the College’s | |
| 2015 audit, including Stewart, met with the College’s management team and presented the audit | |
| plan to the College’s Audit Committee. KPMG’s presentation to the Audit Committee included, | |
| among other things, an audit timeline with fieldwork scheduled to begin in August 2015 and an | |
| expected audit report issuance date of September 2015. | |
| 14. Almost from inception, the KPMG audit team encountered significant challenges | |
| primarily due to Borge’s untimely and inaccurate responses to the requests of the audit team. First, | |
| when the audit team arrived to begin fieldwork in August 2015 they discovered large amounts of | |
| information which was scheduled to be available, including the critical trial balance, was not yet | |
| ready. In addition, the information that the College was able to provide, such as supporting | |
| documentation for the College’s investment balances, contained reconciling issues and | |
| contradictions. | |
| 15. The significant challenges encountered by the audit team worsened as the audit | |
| progressed. For example, the reconciling issues with the College’s investment balances continued | |
| to persist even after Stewart and the KPMG engagement partner unsuccessfully attempted to | |
| resolve the issue. In other instances Borge, who was the audit team’s primary contact at the | |
| College, took extended periods of leave during critical times in the audit leaving audit team | |
| members without the information necessary to complete the audit. | |
| 16. On September 24, 2015, the KPMG engagement partner discussed a draft of the | |
| College’s fiscal year 2015 financial statements with the Audit Committee. Included in the | |
| presentation was a slide explaining that there were still open items and questions that needed to be | |
| addressed prior to KPMG’s issuance of the audit report. Following the Audit Committee | |
| 5 | |
| presentation, Borge failed to provide the audit team with a timely response to the open items and | |
| questions and, as a result, work on the audit stalled. | |
| 17. The significant challenges related to Borge’s untimely and inaccurate responses | |
| continued throughout October and November 2015. The challenges to complete the audit became | |
| so significant and pervasive throughout October and November 2015 that audit team members sent | |
| emails to Stewart that Borge “just makes up numbers from his head” and that the financial | |
| statements “are never going to get issued because [Borge] doesn’t care.” Stewart concluded that | |
| these comments were not serious, but failed to communicate the audit team’s escalating concerns | |
| to the engagement partner. | |
| 18. Despite the fact that he had not met the audit team’s requests for information, on | |
| November 30, 2015, Borge emailed Stewart notifying her that the College had a deadline to | |
| provide its audited financial statements to its bank and that the College needed KPMG to issue the | |
| audit report that day. In response, Stewart informed Borge that the audit team was still waiting on | |
| open items and questions and that the financial statements needed to be reviewed by the | |
| engagement partner. Stewart also suggested that they schedule a time the following day to resolve | |
| the outstanding issues. | |
| 19. Also during the morning of November 30, 2015, the engagement partner received a | |
| telephone voicemail from the President of the College informing him of the bank deadline and the | |
| need for KPMG to issue the College’s audit report that day. Following receipt of that voicemail, | |
| the engagement partner approached Stewart to ask her what needed to be done in order for KPMG | |
| to issue its audit report. During the next few hours Stewart and the engagement partner reviewed | |
| the outstanding open items and unanswered questions and unreasonably concluded that none of the | |
| outstanding items or questions should prevent KPMG from issuing its audit report. As a result, | |
| KPMG issued its audit report containing an unmodified audit opinion on the College’s fiscal year | |
| 2015 financial statements by mid-afternoon on November 30, 2015. | |
| 20. Although KPMG issued its audit report on November 30, 2015, the audit evidence | |
| at that time was not sufficient to support the audit opinion. The audit team, under Stewart’s | |
| supervision, failed to verify the existence of assets or the completeness of liabilities. In addition, | |
| KPMG’s electronic work paper repository (the “eAudit file”) did not contain any indication that | |
| approximately a third of the work papers had been prepared or reviewed as of November 30, 2015. | |
| 21. KPMG’s work on the College’s financial statement audit continued through | |
| January 2016. One audit team member spent 2 ½ days in December 2015 unsuccessfully trying to | |
| locate work papers and address open items and questions. In early January 2016, a new senior | |
| associate was assigned to take over the responsibility to clean-up the audit file but was also unable | |
| to locate all of the missing work papers or address all of the open items and questions. Four | |
| business days before the audit file was required to be closed pursuant to KPMG policies, the new | |
| senior associate emailed Stewart a list of 39 open items as well as 81 additional work papers that | |
| required Stewart’s review. Stewart then marked the work papers as “reviewed” and closed the | |
| audit file on the last day. | |
| 6 | |
| 22. A few months after the College’s audit file was closed, the new senior associate | |
| exchanged text messages with Stewart concerning an unrelated audit, saying “at least they are | |
| close to truly done too, and not fake done like the . . . CNR audit.” In November 2016, after | |
| Borge’s fraud was discovered, KPMG withdrew its audit opinion on the College’s FY15 | |
| financial statements. | |
| Failure to Obtain Sufficient Appropriate Audit Evidence | |
| 23. GAAS require that auditors should design and perform audit procedures that are | |
| appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence | |
| (AU-C §500). Stewart failed to obtain sufficient appropriate audit evidence during the College’s | |
| fiscal year 2015 audit in multiple areas. | |
| 24. For instance, Stewart failed to obtain sufficient appropriate audit evidence to | |
| support the College’s investment balances. During fieldwork the audit team identified reconciling | |
| issues where investment schedules provided by Borge did not tie to the College’s brokerage | |
| statements or the financial statements. In response, Borge informed the audit team that the | |
| reconciling issues were probably due to trades in transit at fiscal year-end. However, the audit | |
| team, under Stewart’s supervision, was never able to successfully reconcile nor did it perform | |
| alternative procedures to substantiate the College’s investment balances reported in the College’s | |
| financial statements. | |
| 25. Stewart also failed to obtain sufficient appropriate audit evidence to confirm the | |
| completeness of the College’s accounts payable balance. The College’s accounts payable balance | |
| decreased by 59% in fiscal year 2015. This was due to Borge fraudulently preventing vendor | |
| invoices from being recorded in the College’s accounts payable system. Despite this decrease, the | |
| audit team determined the risk of material misstatement for the College’s accounts payables to be | |
| low, based on its conclusion that “there was very little, if any, change to the characteristics of the | |
| account compared to the prior year.” As a result, the audit team’s ability to detect the fact that | |
| Borge was withholding vendor invoices was significantly reduced. | |
| 26. Finally, Stewart failed to obtain sufficient appropriate audit evidence to support the | |
| College’s other accounts receivable balance. Notwithstanding annual increases in the College’s | |
| other accounts receivable balance going back multiple years, KPMG did not test any of the other | |
| accounts receivable to verify its existence during the fiscal year 2015 audit. Instead, KPMG’s | |
| work papers document that $3.9 million of other accounts receivable had been tested in prior years | |
| (some of which dated back to fiscal year 2011) and that the audit team passed on testing the | |
| remaining $1.8 million because the amount was below the performance materiality threshold. It | |
| was later determined that supporting documentation for most of the College’s $5.7 million other | |
| accounts receivable reported in fiscal year 2015 did not exist. | |
| Failure to Properly Prepare Audit Documentation | |
| 27. GAAS require that the auditor should prepare audit documentation on a timely | |
| basis. An auditor is required to prepare audit documentation that is sufficient to enable an | |
| 7 | |
| experienced auditor, having no previous connection with the audit, to understand the nature, | |
| timing, and extent of the audit procedures performed, the results of the procedures performed, the | |
| audit evidence obtained and conclusions reached, who performed and reviewed the work and the | |
| date such work was completed (AU-C §230). Finally, AICPA Standards require the auditor’s | |
| opinion to be in written form and dated no earlier than the date on which the auditor has obtained | |
| sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial | |
| statements, including evidence that the audit documentation has been reviewed (AU-C §700). | |
| 28. Stewart failed to prepare adequate audit documentation during the College’s fiscal | |
| year 2015 engagement. KPMG manages and monitors the status of its audit documentation | |
| through its eAudit program. As explained above, as of November 30, 2015, the date of the audit | |
| report, approximately a third of the audit work papers were not documented as either being | |
| prepared or reviewed in the eAudit program. In addition, there was no audit evidence outside of | |
| the eAudit program that the work papers that were lacking documentation were in fact reviewed | |
| prior to the date of the audit report. Instead, the process of preparing and reviewing the work | |
| papers that lacked proper documentation as of November 30, 2015 was completed subsequent to | |
| the audit report date. | |
| Failure to Properly Examine Journal Entries for Evidence of Fraud Due to | |
| Management Override | |
| 29. GAAS require that the auditor maintain professional skepticism throughout the | |
| audit by recognizing that, regardless of the auditor’s prior experience with the client, the possibility | |
| of a material misstatement due to fraud always exists. As such, the risk of a material misstatement | |
| due to management override is present in all entities and is a significant risk. As a result, auditors | |
| are required to, among other things, select and test journal entries and other adjustments made at | |
| the end of a reporting period (AU-C §240). | |
| 30. Stewart failed to comply with this requirement. During the College’s fiscal year | |
| 2015 audit, the audit team did not obtain sufficient appropriate audit evidence with respect to | |
| journal entries posted at the end of the fiscal year. As a result, the audit team’s ability to detect the | |
| numerous fraudulent journal entries that Borge posted during the College’s year-end financial | |
| closing process was significantly reduced. | |
| Failure to Adequately Assess the Risks of Material Misstatement | |
| 31. GAAS require that the auditor perform risk assessment procedures to provide a | |
| basis for the identification and assessment of risks of material misstatement. Additionally, auditors | |
| are required to revise the risk assessment in circumstances in which the auditor obtains audit | |
| evidence that is inconsistent with the audit evidence on which the auditor originally based the risk | |
| assessment (AU-C §315). | |
| 32. Stewart failed to adequately assess and reassess the risks of material misstatement | |
| during the College’s fiscal year 2015 audit. The audit team’s risk analysis appears to have been | |
| performed during previous audits without taking into consideration the College’s current operating | |
| 8 | |
| environment. For example, as described above, despite a 59% decrease in the College’s accounts | |
| payable balance, the audit team assessed a low risk of material misstatement based on its | |
| assessment that “there was very little, if any, change to the characteristics of the account compared | |
| to the prior year.” In addition, amidst increasing challenges primarily related to receiving timely | |
| and credible information from Borge, the audit team never reassessed the risk of material | |
| misstatement during the College’s fiscal year 2015 audit. | |
| Failure to Exercise Due Professional Care and Professional Skepticism | |
| 33. GAAS require that the auditor exercise due professional care and professional | |
| skepticism during the planning and performance of an audit (AU-C §200). Professional skepticism | |
| is an attitude that includes a questioning mind, being alert to conditions that may indicate possible | |
| misstatement due to fraud or error, and a critical assessment of audit evidence. | |
| 34. Stewart failed to maintain professional skepticism during the planning and | |
| performance of the College’s audit. As previously discussed, Stewart failed to exercise | |
| professional skepticism with respect to the numerous reconciling issues that the audit team had | |
| encountered including the receipt of unreliable audit evidence from Borge. In addition, Stewart | |
| failed to communicate the escalating concerns of the audit team to the engagement partner which | |
| should have prompted additional inquiry, corroboration or analysis. As the audit progressed, and | |
| the audit team continued to encounter challenges with the timing and reliability of the information | |
| received from Borge, Stewart did not respond appropriately in order to obtain sufficient | |
| appropriate audit evidence. | |
| E. VIOLATIONS | |
| 35. Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules | |
| of Practice provide, in pertinent part, that the Commission may censure or deny, temporarily or | |
| permanently, the privilege of appearing or practicing before the Commission to any person who is | |
| found by the Commission to have engaged in improper professional conduct. Section 4C(b)(2) | |
| and Rule 102(e)(1)(iv)(B) define improper professional conduct to include the following two types | |
| of negligent conduct: (1) a single instance of highly unreasonable conduct that results in a violation | |
| of applicable professional standards in circumstances in which an accountant knows, or should | |
| know, that heightened scrutiny is warranted; or (2) repeated instances of unreasonable conduct, | |
| each resulting in a violation of applicable professional standards, that indicate a lack of competence | |
| to practice before the Commission. | |
| 36. As a result of the conduct described above, Stewart engaged in improper | |
| professional conduct under Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) as defined | |
| in Rule 102(e)(1)(iv)(B) of the Commission’s Rules of Practice. | |
| 9 | |
| F. UNDERTAKING | |
| 37. Stewart undertakes that she shall not serve as the engagement manager, engagement | |
| partner or engagement quality control reviewer in connection with any audit expected to be posted | |
| in EMMA until reinstated to appear before the Commission as an independent accountant. | |
| 38. In determining whether to accept the Offer, the Commission has considered | |
| Stewart’s undertaking. | |
| IV. | |
| In view of the foregoing, the Commission deems it appropriate and in the public interest to | |
| impose the sanctions agreed to in Stewart’s Offer. | |
| Accordingly, it is hereby ORDERED that: | |
| A. Stewart is suspended from appearing or practicing before the Commission as an | |
| accountant. | |
| 1. After one year from the date of this order, Stewart may request that the | |
| Commission consider her reinstatement by submitting an application (attention: Office of | |
| the Chief Accountant) to resume appearing or practicing before the Commission as: | |
| a. a preparer or reviewer, or a person responsible for the preparation or | |
| review, of any public company’s financial statements that are filed | |
| with the Commission (other than as a member of an audit committee, | |
| as that term is defined in Section 3(a)(58) of the Exchange Act). | |
| Such an application must satisfy the Commission that Stewart’s work | |
| in her practice before the Commission as an accountant will be | |
| reviewed either by the independent audit committee of the public | |
| company for which she works or in some other acceptable manner, as | |
| long as she practices before the Commission in this capacity; and/or | |
| b. a preparer or reviewer, or a person responsible for the preparation or | |
| review, of any public company’s financial statements that are filed | |
| with the Commission as a member of an audit committee, as that term | |
| is defined in Section 3(a)(58) of the Exchange Act. Such an | |
| application will be considered on a facts and circumstances basis with | |
| respect to such membership, and the applicant’s burden of | |
| demonstrating good cause for reinstatement will be particularly high | |
| given the role of the audit committee in financial and accounting | |
| matters; and/or | |
| c. an independent accountant. | |
| 10 | |
| Such an application must satisfy the Commission that: | |
| (1) Stewart, or the public accounting firm with which she is | |
| associated, is registered with the PCAOB in accordance | |
| with the Sarbanes-Oxley Act of 2002, and such registration | |
| continues to be effective; | |
| (2) Stewart, or the registered public accounting firm with | |
| which she is associated, has been inspected by the PCAOB | |
| and that inspection did not identify any criticisms of or | |
| potential defects in Stewart’s or the firm’s quality control | |
| system that would indicate that Stewart will not receive | |
| appropriate supervision; | |
| (3) Stewart has resolved all disciplinary issues with the | |
| PCAOB, and has complied with all terms and conditions of | |
| any sanctions imposed by the PCAOB (other than | |
| reinstatement by the Commission); and | |
| (4) Stewart acknowledges her responsibility, as long as she | |
| appears or practices before the Commission as an | |
| independent accountant, to comply with all requirements of | |
| the Commission and the PCAOB, including, but not limited | |
| to, all requirements relating to registration, inspections, | |
| concurring partner reviews and quality control standards. | |
| 2. The Commission will consider an application by Stewart to resume | |
| appearing or practicing before the Commission provided that her state CPA license is | |
| current and she has resolved all other disciplinary issues with the applicable state boards | |
| of accountancy. However, if state licensure is dependent on reinstatement by the | |
| Commission, the Commission will consider an application on its other merits. The | |
| Commission’s review may include consideration of, in addition to the matters referenced | |
| above, any other matters relating to Stewart’s character, integrity, professional conduct or | |
| qualifications to appear or practice before the Commission as an accountant. Whether an | |
| application demonstrates good cause will be considered on a facts and circumstances | |
| basis with due regard for protecting the integrity of the Commission’s processes. | |
| By the Commission. | |
| Vanessa A. Countryman | |
| Secretary |