BDO has agreed to pay $2.1 million to settle charges that it
improperly signed off on the financial statements of an employment
staffing company that was implicated in a fraud scheme.
The U.S. Securities and Exchange Commission filed the charges in an
administrative order
Wednesday, alleging BDO approved statements included in General
Employment Enterprises’ 2009
and 2010 annual reports despite its
auditors’ misgivings over $2.3 million in company funds that had gone
missing under suspicious circumstances.
The money turned out to have been stolen from GEE as part of an $11
million fraud involving Park Avenue Bank, its former president, and
Kentucky businessman Wilbur Huff.
“Audit firms must train their audit and national office professionals
not only to recognize red flags but also to have the resolve to refuse
signing off on an audit if there are unresolved material issues,” Andrew
Ceresney, director of the SEC’s Division of Enforcement, said in a news
release. “BDO failed to do that here, even though these issues were
elevated to the highest levels of its audit practice.”
The accounting firm agreed to pay disgorgement of its audit fees and
interest totaling approximately $600,000, as well as a $1.5 million
penalty, to resolve the case.
In addition, five BDO partners — Sean C. Henaghan, John E. Rainis,
James J. Gerace, Leland E. Graul, and Wendy M. Hambleton — will pay a
total of $75,000 in penalties for their roles in the deficient audits.
Also charged in the case is former Kentucky Lt. Gov. Steve Pence, who
allegedly acted as Huff’s front man in the diversion scheme while
serving as GEE’s chairman.
According to the SEC, BDO was advised near the end of its 2009 audit
of GEE that the $2.3 million had been invested in a CD but wasn’t repaid
by the bank when it matured. The money represented about half of the
company’s assets and most of its cash.
Even though BDO never received a reasonable explanation of how the
money went missing, the SEC said, it withdrew its demand for an
independent investigation and issued unqualified opinions of the
financial statements included in the annual reports.