HSBC Was Told About Bernard Madoff Fund ‘Fraud Risks’ in Two KPMG Reports

     There was an article published by Bloomberg which talks about how HSBC, Europe's biggest lender, had been warned about possible fraud and operational risks associated with Madoff LLC.  HSBC served as custodian for over 12 funds and $8 billion dollars.  The accounting firm of KPMG had been hired by HSBC to review how Madoff's investment behavior. The firm reported 28 risks between 2006 and 2008 due to limited internal controls. 
     What the KPMG failed to do was give evidence of whether or Madoff was indeed commmitting fraud, or simply had weak internal controls.  After the fact, HSBC believes that Madoff merely tricked the accounting firm by forging some documents.
     I would think that to some degree that KPMG was at fault.  They never tested any of the risks that they reported to HSBC.  But, is that a fault of KPMG.  I'm not sure that I fully understand the type of engagement that KPMG had accepted from HSBC.  It clearly was not an audit but a simple review. 
    As a result of HSBC not demanding a full audit, the institution lost $1billion of it's own funds to the Madoff scam.
http://www.bloomberg.com/news/2011-03-18/hsbc-was-told-about-bernard-madoff-fund-fraud-risks-in-two-kpmg-reports.html
    It is imperative that accounting firms make absolutely sure of their clientele's integrity.  The firm may have gained business in the short term but will eventually lose more than it gained.  The failure of so many entities to detect the Bernie Madoff fraud, has far reaching implications as far as the public's trust in the markets and the SEC.