(Washington, DC – Insurance News 360) – On Dec. 21, the Securities and Exchange Commission filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit firm for their significant failures in audits of Corporate Resource Services Inc., which went bankrupt in 2015 after the discovery of approximately $100 million in unpaid federal payroll tax liabilities.
The SEC’s order against Crowe finds that its audit team identified pervasive fraud risks in connection with its 2013 audit of Corporate Resource Services yet failed to:
Include procedures designed to detect the company’s undisclosed payroll tax obligations;
Properly identify and audit the company’s related-party transactions;
Obtain sufficient appropriate audit evidence to respond to these fraud risks, support recognition of revenue, and otherwise support the audit opinion;
Evaluate substantial doubt about the company’s ability to continue as a going concern; and
Conduct a proper engagement quality review.
According to the order, Crowe was not independent, because of an ongoing direct business relationship with Corporate Resource Services. Audit deficiencies occurred despite the involvement of Crowe’s national office, which was aware of the high-risk nature of the engagement and the inability to obtain appropriate evidence. The order also finds that Crowe’s engagement partner, Joseph C. Macina, and engagement quality reviewer, Kevin V. Wydra, caused Crowe’s audit failures.
A related order finds that Mitchell J. Rubin and Michael Bernstein, former partners at Rosen, Seymour, Shapps, Martin & Co., LLP, engaged in fraud and performed a highly deficient audit of Corporate Resource Services’ 2012 financial statements, which amounted to no audit at all, and that Bernstein caused the firm to lack the required independence when he failed to comply with partner rotation requirements.
“The audit standards are designed to ensure that public accounting firms have reasonable procedures to identify and respond to illegality and issues that pose material risks to the integrity of an issuer’s financial statements,” said Anita B. Bandy, Associate Director in the Division of Enforcement. “As set out in our order, the pervasive audit failures of Crowe and these accountants left investors with a misleading picture of Corporate Resource Services’ financial condition.”
Crowe will pay a $1.5 million penalty, be censured, and retain an independent compliance consultant to review its audit policies and procedures. Macina, Rubin, and Bernstein each agreed to pay a $250,000 penalty. Wydra will pay a $15,000 penalty. Macina, Wydra, Rubin, and Bernstein are suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Macina and Wydra to apply for reinstatement after three years and one year, respectively. Crowe, Macina, Wydra, Rubin, and Bernstein, who settled without admitting or denying the findings, also were ordered to cease and desist from future violations.
The SEC’s investigation continues and has been conducted by Sharan K.S. Custer, Ernesto Amparo, Regina Barrett, and Kam Lee, and supervised by Ms. Bandy and Kristen Dieter.
Source: U.S. Securities and Exchange Commission.