The Securities and Exchange Commission has alleged that two KPMG auditors, Kevin Hill and Rosemary Meyer, ignored fraud red flags during their audit of U.S. Foodservice Inc., a subsidiary of Ahold NV. It is further alleged that the auditors violated the rules of professional conduct during their audit.

It is alleged that Hill and Meyer found evidence of improperly recorded revenue, but the auditors did not act on this information. It is further alleged that white-out was used to cover markings on working papers that referred to audit exceptions identified related to vendor payments.

At least four former executives of U.S. Foodservice have been charged by the SEC and the Justice Department with participation in a scheme to inflate earnings in 2001 and 2002. The SEC and Justice Department have also charged numerous vendors who allegedly participated in the scheme by signing false confirmations of expected rebates. That allowed U.S. Foodservice to book additional revenue for the “expected” rebates, when those rebates really did not exist.