Deloitte Dumps Small Company

Puerto Rican landscaper Margo Caribe says it had no disputes with the Big Four auditor; Deloitte cites material weaknesses and uncertainty over whe...
Stephen TaubSeptember 22, 2006

A tiny Puerto Rican landscaping company says it was dumped by Big Four accounting firm Deloitte & Touche LLP.

Margo Caribe Inc., which had less than $10 million in revenues in 2005 and a $17 million market cap, says it did not have any dispute with the auditor in the past two years. The company admitted, however, that Deloitte determined there were material weaknesses related to the company’s internal controls and operations — most of them stemming from the company’s small size.

The filing underscores a number of hot-button issues related to Section 404 of the Sarbanes-Oxley Act — including whether small companies can meet its demands — and the relative scarcity of accounting firms, which has led some companies to charge that they were unfairly discarded in favor of more-lucrative auditing clients.

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According to the company’s filing, Deloitte singled out four material weaknesses at Margo. For example, the auditor asserted the company did not maintain a sufficient complement of personnel to maintain an appropriate accounting and financial-reporting structure commensurate with the activities of the company. Deloitte also said the company’s limited number of personnel did not allow for an appropriate level of segregation of duties.

Deloitte also deemed that Margo did not have an appropriate fraud-detection program to address the risk that the financial statements may be materially misstated as a result of fraud. Finally, Deloitte determined that the company did not maintain adequate controls and procedures to assure the identification and reporting of certain transactions with related parties.

In its filing, Margo said Deloitte issued a report on September 6 stating concerns about the company’s ability to continue as a “going concern.” Margo’s stock has traded at between $5 and $9.80 during the most recent 52-week period. According to Hoover’s, Margo is the largest supplier of ornamental and landscaping plants in Puerto Rico, and recently purchased Georgia-based State Line Bark & Mulch in an effort to move into the U.S. market. The company is about 65 percent owned by chairman and CEO Michael Spector and his wife, Margaret Spector.