Top 10 Firm Crowe LLP agreed to pay the Securities and Exchange Commission a penalty of $1.5 million to settle charges surrounding its audit of a now-bankrupt staffing company.
The audit client, Corporate Resource Services Inc., went bankrupt in 2015 after it was revealed that it had not paid approximately $100 million in federal payroll taxes.
In its order, the SEC says that Crowe’s audit team had identified “pervasive fraud risks,” but did not:
- Include procedures 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.
The SEC also said that Crowe was not independent, because it had an ongoing business relationship with Corporate Resource Services, and that the firm’s national office was aware of the issues with the audit.
The firm agreed to pay a penalty of $1.5 million, to be censured, and to hire an independent compliance consultant to review its audit policies and procedures, but neither admitted nor denied the SEC’s findings.
“This matter is related to work Crowe performed on a single audit in 2014,” the firm said in a statement. “Crowe is committed to maintaining the highest standards of audit quality and regulatory compliance, and we cooperated fully with the SEC to resolve this matter. We are pleased to put the matter behind us.”
The commission’s order said that engagement partner Joseph C. Macina and engagement quality reviewer Kevin V. Wydra caused Crowe’s audit failures. Both have agreed to be suspended from practice before the SEC as accountants, though they can apply for reinstatement after three years and one year, respectively; and both will pay fines, of $25,000 and $15,000 respectively.
In a related order, the SEC said that Mitchell J. Rubin and Michael Bernstein, former partners at Rosen, Seymour, Shapss, Martin & Co., had “engaged in fraud and performed a highly deficient audit … which amounted to no audit at all” for Corporate Resource Services in 2012. Bernstein also failed to comply with partner rotation requirements. Rubin and Bernstein will both pay a penalty of $25,000, and are suspended from SEC practice, with no mention of reinstatement.
All four individual accountants neither admitted nor denied the findings. All the participants, including Crowe, were found by the SEC to have engaged in improper professional conduct.
"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 Bandy, associate director in the Division of Enforcement in a statement. "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."
The SEC’s investigation is ongoing.
