BDO USA (“BDO”), a national audit firm, and five of its partners are facing charges from the Securities and Exchange Commission (“SEC”) in relation to its client General Employment Enterprises (“General Employment”). According to an SEC press release, BDO ignored red flags and issued false and misleading unqualified audit opinions for General Employment.
According to the SEC’s orders instituting settled administrative proceedings against BDO and its partners, during a 2009 audit BDO was informed by General Employment of a $2.3 million 90-day certificate of deposit (“CD”). The CD represented about half of the company’s assets and most of its cash. However, the bank showed no record of the CD. BDO received a series of conflicting and unclear explanations from management regarding the CD but still issued unqualified opinions on the financial statements for General Employment’s 2009 and 2010 annual reports. Andrew Ceresney, Director of the SEC’s Division of Enforcement explained that“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.”
BDO has admitted to wrongdoing and will pay disgorgement fees of approximately $600,000 in addition to a $1.5 million penalty. BDO will also comply with a plan to improve its quality controls. The five BDO partners agreed to settle charges totaling $75,000. Four of the partners have been suspended from practicing public accounting for varying periods. Two former General Employee CEOs have also agreed to settle separate charges.
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