TowerGroup Comments on New Report That Faults KPMG in New Century Collapse

NEEDHAM, Mass.--(Business Wire)--
A recent report prepared for the US Department of Justice finds
fault with accounting firm KPMG for contributing to the April 2007
collapse and bankruptcy of subprime mortgage lender New Century
Financial Corporation. KPMG strenuously denies it ignored accounting
rules in its auditing for the company, which resulted in senior New
Century executives benefiting from generous bonuses that would
otherwise not have been paid - and which otherwise masked the real
financial condition of the lender.

"Regardless of the truth in this matter, the appearance of sins,
whether of omission (error) or commission (fraud), can sully the
reputation of any professional services firm," said Rodney Nelsestuen,
senior analyst at TowerGroup.

Inci Kaya, a quantitative analyst at TowerGroup, cited reputation
risks to both financial institutions and their hired consulting firms
because of the challenges of satisfying customers in a marketplace
where consultancy work is increasingly competitive. "The pressure to
find in favor of those who hire your firm creates an opening and, in
some cases, an incentive for moral lapse," she said.

Both Nelsestuen and Kaya noted that Arthur Andersen's involvement
in the Enron scandal exposed fundamental flaws in the consulting
sector, and served as a wake-up call to the industry. The scandal
resulted in the establishment of more rigorous reporting standards and
the separation of the accounting and advisory services arms of
professional services and consulting companies. Yet TowerGroup has
found that, over time, these lines of separation have again begun to
blur.

For financial institutions, TowerGroup stresses the importance of
avoiding situations that may lead to conflicts of interest or put
undue pressure on their professional services providers. Beyond
specific areas of concern such as accounting, the following steps are
fundamental elements of a comprehensive approach to integrated risk
management. At the core, it is a Board-level responsibility to demand
that the institution:

-- Maintain strong internal controls with independence and with
arm's-length audit processes, whether internally or externally
provided

-- Avoid complacency with chosen providers by maintaining a
rigorous selection process

-- Demand high levels of integrity from key officers

-- Maintain a policy of rewarding whistle-blowing instead of
allowing a culture of fear to permeate the institution

-- Insist on the conservative application of accounting rules
instead of accommodating a more liberal interpretation in the
face of pressure to demonstrate improved financial results

-- Understand that while fiduciary responsibility may uncover
devastating news about an institution's finances, early
intervention is still the best hope for taking corrective
measures to remedy the situation both internally and
externally

TowerGroup's Nelsestuen and Kaya are both available for comment on
this topic. Please contact Thea Linscott at +1-917-595-3061 or
tlinscott@cooperkatz.com. Members of the press may also request a copy
of a recent report authored by the analysts regarding professional
services and consulting firms in the financial services sector, titled
"Professional Services and Consulting in 2008 and Beyond: The
Inevitable Rise of IT Consultancies."

About TowerGroup: TowerGroup is the leading research and advisory
services firm focused exclusively on the financial services industry.
A respected source for trusted information and advice, TowerGroup
brings many of the world's leading financial institutions, technology
companies, and professional services firms a deeper understanding of
the business and technology issues impacting their organizations.
Headquartered near Boston in Needham, Massachusetts, and with offices
in North America and Europe, TowerGroup serves a global client base.
Visit www.towergroup.com for more information.

TowerGroup
Thea Linscott, +1-917-595-3061
tlinscott@cooperkatz.com

Copyright Business Wire 2008