Despite longstanding suspicion of corruption, world soccer’s
governing body has received a clean bill of financial health for 16 consecutive
years from KPMG, one of the world’s top auditing, accounting and
consulting firms.
No one has challenged the accuracy of the annual reports of
the body, FIFA, which are prepared according to international accounting
standards by KPMG’s office in Zurich, where FIFA is based. But that only
heightens the puzzling disconnect between the different pictures that are
emerging of FIFA as an organization: riddled with bribes and kickbacks in the
view of prosecutors, yet spotless according to the outsider most privy to its
internal financial dealings.
“It’s legitimate to raise questions about the effectiveness
of the audits, given that the risks were already widely rumored,” said Barry
Jay Epstein, a financial-reporting expert and certified public accountant who
is a principal in Epstein & Nach, a consulting firm based in Chicago
that specializes in forensic accounting. Mr. Epstein, who wrote a widely used
professional handbook on accounting and auditing, added that if theJustice
Department’s accusations of $150 million in bribes and kickbacksrelated to World
Cup bidding and other soccer events “turn out to be founded, then analytically,
something should have shown up” in KPMG’s audits “that would have required
deeper investigation.”
Andreas Hammer, a spokesman in Zurich for KPMG’s Swiss
offices, declined to comment, saying in an email that “as FIFA’s statutory
auditor, we are bound by professional confidentiality and have to refrain from
any comment regarding our client.”
As FIFA’s first and only outside auditor, KPMG has worked for
the organization since 1999, one year after Sepp Blatter, who resigned on
Tuesday as president just days after being re-elected to a fifth term,
began his tenure. KPMG took on a client long criticized for its lack of
transparency and its corporate governance issues.
But it is an important relationship for both sides. For FIFA,
it means a member of the Big Four accounting club is signing off on its books.
KPMG also audits, at FIFA’s request, dozens of FIFA member associations — 40 of
them last year. “Having one of the big auditors of course helps to give some
credibility to your accounts,” said Jean-Pierre Méan, an advisory council
member at Transparency International Switzerland, part of a global
anti-corruption organization.
Over its most recent four-year financial cycle, 2011 to 2014,
FIFA had $5.7 billion in revenue, mostly from the sales of rights to marketing,
licensing, television broadcasting and hospitality, and more than $5.4 billion
in expenses. It has reserves of more than $1.5 billion. Referring to its
“internal controls system,” or I.C.S., intended to root out fraud, FIFA wrote
in its 2009 annual report that “communication with KPMG is extremely important
for the members of the internal audit committee because KPMG as external
auditors have a very detailed picture of the FIFA I.C.S. following the in-depth
audits that they have performed.”
Roger Neininger, the board chairman of KPMG in Switzerland,
took the podium last week at FIFA’s annual congress in Zurich, just two days
after the United States Justice Department indicted 14 current and former
senior FIFA officials and sports marketing executives on 47 counts of
racketeering and corruption. Mr. Neininger has been the auditor-in-charge of
FIFA’s annual report since 2011, though the 2014 report omits that title. His
role at the closed-door sessions, to recommend that FIFA’s executive committee
approve KPMG’s signoff on the year’s annual report, sent a clear signal: KPMG
was standing by its client.
Accounting firms often contend that their audits are only as
good as the information they receive from clients, but they are supposed to
recognize patterns or anomalies that suggest they should dig a little deeper. A
key element in the Justice Department’s case is a $10 million payment
that prosecutors say was transferred in 2008 from FIFA to accounts controlled
by a soccer official, Jack Warner, as a bribe in exchange for helping South
Africa secure the right to host the 2010 World Cup.
Mr. Epstein said that while the $10 million payment could be
insignificant, or immaterial in accounting terms, given FIFA’s size, it would
not be immaterial in qualitative terms. “That’s something people would want to
know about,” he said.
KPMG had questioned another payment a decade earlier. In a
1999 “Revised Audit Management Letter” sent to FIFA, KPMG noted an unusual
payment in connection with the Confederations Cup — an important tournament
involving soccer’s continental champions that is now held the year before the
World Cup.
“To cover the excess expenditure at the Confederations Cup in
Saudi Arabia, the organizer has made an additional payment of 470,000 Swiss
francs,” the letter, obtained by the independent journalist Andrew Jennings,
says in German. “The payment was authorized by the president of FIFA, but
without the authorization of the finance committee or the executive committee.”
It is unclear to whom the payment was made or which
Confederations Cup in Riyadh was involved — Saudi Arabia hosted them in 1995
and 1997, part of the four-year financial cycle covered in the 1999 letter.
Even before the indictments, there was no shortage of potential red flags. In
2002, Michel Zen-Ruffinen, FIFA’s secretary general at the time, wrote an
explosive report accusing Mr. Blatter and his lieutenants of extensive
fraud. The report, parts of which were published in the Swiss news media,
contended that from 1999 to 2002, FIFA, which was struggling financially,
booked 336 million Swiss francs in revenue from its sale of marketing rights to
the 2006 World Cup in Germany — an unusual move for an organization that at the
time used accounting methods that recorded income when it was received, not in
advance, according to accounting experts.
KPMG noted the move in its audit of the period. Mr.
Zen-Ruffinen’s report added that FIFA had destroyed financial documents before
1998, a year before KPMG was hired.
In 2008, a trial in Zug, Switzerland, of former executives of
International Sports and Leisure, a FIFA-affiliated marketing firm that had
collapsed amid allegations of fraud and theft, fell apart after the group’s
lawyers produced internal documents contending that FIFA was involved.
By 2012, FIFA named Michael J. Garcia, a prominent former
federal prosecutor, as the lead investigator of its ethics committee. Mr.
Garcia, who extended his inquiry into bidding practices for the 2018 World Cup
in Russia and the 2022 World Cup in Qatar, gave FIFA his final report last
September but resigned from the role in December after FIFA released a
redacted version that Mr. Garcia complained was erroneous and misleading.
And last November, a member of FIFA’s eight-person audit and
compliance committee, Canover Watson, was charged in his native Cayman
Islands with fraud and money laundering in connection with procurement of
a card-swipe system for the public hospitals there. FIFA’s most recent annual
report notes that Mr. Watson has “temporarily left the committee.”
“You’re looking for the tip of the iceberg in an audit,” Mr.
Epstein said, adding that in KPMG’s work for FIFA, “the tip should have gotten
the auditor’s attention sometime over the years.”
