SEC Charges Audit Firm in Failure to Detect Unpaid Taxes

Crowe LLC let $100 million in unpaid taxes slip under its radar, SEC alleges.

The Securities and Exchange Commission (SEC) settled charges against audit firm Crowe LLC for $1.5 million on December 21, as a result of its investigation against the firm, two of its partners, and two partners of a now-obsolete auditing firm, after it was discovered the parties failed to detect approximately $100 million in unpaid federal payroll tax liabilities from one of its clients, Corporate Resource Services Inc. (CRS), in 2013.

CRS filed for bankruptcy in 2015 after the discovery, leading the SEC to file specific charges against Crowe for failing to fulfill its responsibilities in auditing the firm. The SEC found that Crowe did not include procedures designed to detect CRS’s undisclosed payroll tax obligations, properly identify and audit the company’s related-party transactions, and other concerns.

The SEC also found that Crowe had a continuing direct business relationship with CRS, subsequently breaching mandatory independence obligations.

Crowe agreed to pay the $1.5 million penalty, according to a statement from the SEC, and retain an independent compliance consultant to review its audit policies and procedures. Several individuals were brought into the settlement case as well, including engagement partners Joseph Medina, Mitchell Rubin, and Michael Bernstein, who each agreed to pay a respective penalty surmount to $25,000 each. Third-party engagement quality reviewer Kevin Wydra also agreed to pay a $15,000 penalty. The four individuals also are not permitted to participate in the financial reporting or audits of public companies for a short period of time.

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“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 did not respond to questions by press time.

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